A covered call sells someone the right to buy shares you already own at a set strike price, collecting premium income in exchange for capping the upside.
How it works
Shares times premium per share gives the premium income. The strike-price gain (if called away) plus that premium gives the maximum profit. Current price minus the premium gives the breakeven price.
What this does not include
This doesn’t include the opportunity cost if the stock rallies well past the strike price — the upside beyond the strike is capped, a real tradeoff for the premium income received, not reflected as a separate cost here.
How to use this calculator
- Enter shares owned, current price, strike price, and premium per share.
Frequently asked questions
What happens if the stock stays below the strike price?
The option expires worthless, the seller keeps both the shares and the full premium — often the outcome income-focused covered call sellers hope for.
What happens if the stock rises above the strike price?
The shares are typically “called away” (sold) at the strike price, capping the seller’s gain at the maximum profit shown, even if the stock continues rising further.
Why sell a covered call instead of just holding shares?
To generate income from an existing position, especially useful in a flat or modestly rising market where the shares are unlikely to blow past the strike price anyway.
