Options calculator
Covered Call Calculator
Calculate max profit, breakeven, and premium yield for covered call strategies. Essential for options income trading.
Educational use only. Not financial advice. Results are estimates. Trading involves risk. Read full disclaimer.
Covered calls are a popular income-generating strategy where you own shares and sell call options against them. This calculator helps you analyze the potential returns, breakeven points, and risks of covered call positions. Understanding these metrics is crucial for managing covered call strategies effectively and recognizing that premium does not eliminate stock downside. This is expiration-based math for standard 100-share contracts covering all entered shares, before fees, taxes and dividends.
Covered Call Calculator
Expiration Estimates
Premium received: $150.00. Estimated loss if stock falls to zero: $4850.00.
Capped Expiration P/L (if assigned)
$650.00
Capped Expiration P/L %
13.00%
Breakeven (downside)
$48.50
Premium / Current Stock Price
2.88%
Note: At expiration, an unassigned call leaves you with the premium and shares; stock losses can outweigh the premium. If assigned, your shares will be sold at the strike price, and you keep the premium.
Expiration-based estimate, standard 100-share calls covering all entered shares; excludes fees, dividends and taxes. Premium is only a partial downside offset, not total strategy return. American-style calls can be assigned early; assignment may realize a loss relative to stock cost basis.
How to Use This Calculator
- Enter number of shares: How many shares you own (100 per standard contract; enter multiples of 100).
- Enter stock cost basis: The price per share you paid for the stock.
- Enter current stock price: The current market price of the stock.
- Enter call strike price: The strike price of the call option you're selling.
- Enter premium received: The premium per share you received for selling the call (multiply by 100 for total per contract).
- Review results: See max profit, max profit %, breakeven, and premium yield.
Formula
Max Profit = (Strike - Cost Basis + Premium) × Shares
Max Profit % = (Max Profit ÷ Total Cost Basis) × 100
Breakeven = Cost Basis - Premium
Premium Yield = (Premium ÷ Current Stock Price) × 100
Common Mistakes to Avoid
- Ignoring assignment risk: If the stock rallies above the strike, you'll be assigned and lose your shares. Don't sell calls on stocks you don't want to sell.
- Chasing high premium: Very high premiums often indicate high volatility or the stock is already in-the-money, increasing assignment risk. Balance premium with your outlook.
- Not considering taxes: Covered calls can affect your holding period for long-term capital gains. Consult a tax advisor if you're trading covered calls regularly.
- Selling calls on stocks you want to keep: Only use covered calls on stocks you're willing to sell at the strike price. If you're bullish, consider not selling calls or using out-of-the-money strikes.
Frequently Asked Questions
What is a covered call strategy?
A covered call involves owning shares of a stock and selling call options against those shares. You collect premium income, but cap your upside potential at the strike price. If the stock price rises above the strike, your shares may be called away (assigned) at the strike price. Premium provides only a partial offset to stock downside; substantial loss remains possible.
What is the maximum profit on a covered call?
Maximum profit occurs if the stock is assigned at expiration. It equals (strike price - cost basis + premium received) × number of shares. This capped expiration result can be negative if cost basis exceeds strike plus premium. Assignment may occur early for American-style calls.
What happens if the stock price goes above the strike?
If the stock price is above the strike at expiration, the call option will likely be exercised, and your shares will be sold at the strike price. You keep the premium but miss out on any gains above the strike. This is the trade-off of covered calls—you cap your upside for premium income.
What is the breakeven price?
The modeled expiration breakeven is your cost basis minus the premium received. If the stock falls to this price, you break even on the trade. The premium you collected only partially offsets downside; losses below breakeven can be substantial.
What is premium yield?
Premium yield is the premium received divided by the current stock price, expressed as a percentage. It is a premium-to-price ratio, not total strategy return. Higher premium yields indicate more income, but may also mean higher assignment risk.
How do I choose the right strike price?
Choose strikes based on your goals. Out-of-the-money calls (strike above current price) offer more upside potential but less premium. At-the-money calls offer more premium but higher assignment risk. In-the-money calls offer the most premium but cap your profit immediately. Consider your outlook on the stock and income needs.
What is assignment risk?
Assignment risk is the chance that your shares will be called away before expiration. This happens if the stock price rises above the strike and the option holder exercises early (for American-style options). You lose the shares but keep the premium. Assignment is more likely as the stock approaches or exceeds the strike.
Can I buy back the call option to close the position?
Yes, you can buy back the call option at any time before expiration to close the position. If the stock has moved significantly, you may pay more than you received (a loss) or less (a profit). Buying back allows you to keep your shares and potentially sell another call at a different strike or expiration.