How to Sell Covered Calls

This step-by-step guide will walk you through selling your first covered call.

Prerequisites

Before you can sell covered calls:

  • Own at least 100 shares of a stock
  • Have options trading approval from your broker
  • Understand the risks and mechanics

    • Step-by-Step Instructions

    Step 1: Check Your Holdings

    Verify you own 100+ shares of an optionable stock.

    Step 2: Open the Options Chain

    In your broker's app or website, find the options chain for your stock.

    Step 3: Select Expiration Date

    Choose an expiration date 30-45 days out for optimal time decay.

    Step 4: Choose Strike Price

    Select a strike price based on your goals:
  • Keep shares: Choose 10%+ OTM (delta 0.15-0.20)
  • Balanced: Choose 5-7% OTM (delta 0.25-0.30)
  • Max income: Choose 2-3% OTM (delta 0.35-0.40)

    • Step 5: Sell to Open

    Place a "Sell to Open" order. Set a limit price at the mid-point of bid-ask spread.

    Step 6: Confirm Order

    Review details and submit. Premium is credited immediately.

    Common Mistakes to Avoid

  • Selling too close to the money - Higher assignment risk
  • Ignoring earnings dates - Volatility spike can hurt
  • Not having an exit plan - Know when to roll or close