Selling Covered Calls Step by Step

You need exactly 100 shares per contract. If you own 300 shares, you can sell up to 3 covered calls.

The shares serve as collateral. If the buyer exercises, your broker delivers your shares automatically. No margin needed for the option itself.

Open your broker's options chain and look at call strikes above the current stock price.

Use delta as your guide:

• 0.20 delta → ~80% chance of keeping shares. Lower premium.
• 0.30 delta → ~70% chance of keeping shares. Moderate premium. Most popular.
• 0.40 delta → ~60% chance of keeping shares. Higher premium but more assignment risk.

Ask yourself: "Would I be happy selling my shares at this price?" If yes, it's a valid strike.

Target 30-45 days to expiration (DTE). This window offers the best balance of premium collected vs. time exposed to risk.

Avoid selling through earnings dates unless you specifically want the elevated premium and accept the gap risk.

Place a "Sell to Open" limit order at the mid-point of the bid-ask spread. The premium is credited to your account immediately.

Your broker will show this as a short call position. Your shares are now earmarked as collateral until the option expires or you close it.

Close at 50% profit: If you sold for $2.00 and it's now worth $1.00, buy it back. You captured $100/contract in half the time and freed up your shares to sell a new call.

Let it expire worthless: If the option is far OTM with days left, you can let it expire. You keep 100% of the premium.

Roll if needed: If the stock is approaching your strike and you don't want to be called away, you can roll the call up and out for a credit. See the Rolling Options lesson for details.