Covered Call Calculator
Calculate the profit, breakeven, and return on a covered call options strategy.
See maximum profit, downside protection, and annualized yield.
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Covered Call Analysis
A covered call is an options strategy where you own 100 shares of a stock and sell a call option against them. You collect the option premium immediately but cap your upside at the strike price.
The Key Formulas:
Maximum profit = (Strike price − Stock purchase price + Premium received) × 100
Break-even price = Stock purchase price − Premium received
Maximum loss = (Stock purchase price − Premium) × 100 (if stock goes to zero)
Worked Example:
- You own 100 shares of XYZ at $50 per share (cost basis: $5,000)
- You sell 1 call option at $55 strike price for $2.00 premium
- Premium received: $2.00 × 100 = $200 (immediate income)
If stock stays below $55 at expiration:
- Option expires worthless, you keep $200 premium
- Annualized yield: $200 / $5,000 = 4% for that option period
If stock rises above $55:
- Shares get called away at $55
- Total profit: (55 − 50 + 2) × 100 = $700
If stock falls to $46:
- Break-even: $50 − $2 = $48 (premium cushions losses to $46–$48)
- Loss at $46: (50 − 2 − 46) × 100 = $200 loss (vs $400 without the call)
Options Greeks for Covered Calls:
| Greek | What It Measures | Impact |
|---|---|---|
| Delta | Price movement per $1 stock move | 0 to 1.0 |
| Theta | Time decay per day | Positive for option seller |
| Implied Volatility | Market’s expected movement | Higher IV = higher premiums |
Practical Tips:
- Sell calls at 30–45 days to expiration to maximize theta decay
- Strike price 5–10% above current stock price (out-of-the-money) balances income and upside
- Avoid selling calls before earnings announcements — IV spikes can dramatically increase buyback cost
- Most profitable in sideways or slowly rising markets