The Short Answer: One Contract, 100 Shares, One Premium Check

To sell a covered call on 100 shares, you open your brokerage, select the stock you already own, choose "Sell to Open" on a call option with your preferred strike price and expiration, and submit the order. One standard options contract covers exactly 100 shares, so owning 100 shares gives you the right to sell exactly one covered call contract. The premium lands in your account the same day the trade fills.

That's the core mechanic. The rest of this guide walks you through every decision point — strike selection, expiration, real dollar numbers, and the risks you need to understand before you place that first trade.

Why 100 Shares Is the Magic Number

Every U.S. equity options contract is standardized to represent 100 shares of the underlying stock. This standardization is set by the Options Clearing Corporation (OCC) and explained in detail by the Options Industry Council (OIC). It means:

- 100 shares owned = 1 contract you can sell - 200 shares owned = 2 contracts you can sell - 50 shares owned = 0 contracts (you're one share short of the minimum)

If you own fewer than 100 shares of a stock, you cannot sell a standard covered call on it. Some brokers offer "mini" options on a handful of tickers, but those are rare and illiquid. For practical purposes, 100 shares is the entry ticket.

The "covered" part matters legally and practically. FINRA defines a covered call as one where the seller owns the underlying shares. If you sell a call without owning the shares, that's a naked call — a far riskier strategy that most brokers won't allow in a basic options account.

A Real Worked Example: Selling One AAPL Covered Call

Let's say you own 100 shares of Apple (AAPL), currently trading at $213.00. You want to generate income this month without selling your shares unless the price climbs significantly.

**Step 1 — Pick your strike price.** You choose the $220 strike, which is about 3.3% above the current price. This is an out-of-the-money (OTM) call. If AAPL stays below $220 by expiration, you keep your shares and the full premium.

**Step 2 — Pick your expiration.** You select an expiration 30 days out. The $220 call is quoted at $2.85 bid / $2.90 ask. You place a limit order at $2.87 (splitting the spread).

**Step 3 — Place the order.** In your brokerage platform: Action = Sell to Open, Quantity = 1 contract, Strike = $220, Expiration = your chosen date, Order type = Limit at $2.87.

**Step 4 — Collect the premium.** The order fills. You receive $287.00 (that's $2.87 × 100 shares) credited to your account immediately, minus any commission your broker charges.

**What happens at expiration?** - AAPL closes at $210 (below $220): The option expires worthless. You keep the $287 and your 100 shares. You can sell another call next month. - AAPL closes at $225 (above $220): Your shares get called away at $220. You sell 100 shares for $22,000 plus you already collected $287 in premium. Your effective sale price is $220 + $2.87 = $222.87 per share.

That $287 on a $21,300 position is a 1.35% return in 30 days — roughly 16% annualized if you repeat it every month under similar conditions. Past results don't guarantee future premiums, but this math shows why covered calls attract income-focused investors.

How to Choose Your Strike Price and Expiration

**Strike price: the income vs. upside trade-off** The lower the strike relative to the stock price, the higher the premium — but the more upside you give up. The higher the strike, the lower the premium, but you keep more potential gain if the stock runs.

A common starting point for beginners is a delta of 0.20 to 0.30 on the call side. Delta roughly tells you the probability the option finishes in the money. A 0.25-delta call has about a 25% chance of being assigned. Most brokers display delta in their options chain.

For our AAPL example, the $220 strike had a delta near 0.28 — meaning roughly a 28% chance of assignment and a 72% chance you keep your shares and the full premium.

**Expiration: the 30-45 day sweet spot** Options lose time value fastest in the final 30-45 days before expiration. This decay, called theta, works in your favor as the seller. The OIC's educational materials specifically highlight the 30-45 day window as the zone where sellers capture the steepest time-value erosion. Going shorter (7-14 days) gives you less premium per trade; going longer (90+ days) ties up your shares for a bigger potential payout but slower decay early on.

What Are the Real Risks? (Read This Before You Trade)

Covered calls are one of the most conservative options strategies, but they are not risk-free. Here are the three risks every beginner must understand.

**Risk 1 — Capped upside.** If AAPL rockets from $213 to $240, you still sell at $220 (plus the $2.87 premium). You miss $17.13 per share of gains above your effective cap. This is the biggest complaint from covered-call sellers in strong bull markets.

**Risk 2 — The stock can still fall.** The $287 premium you collected cushions a drop, but only by $2.87 per share. If AAPL falls to $190, you lose $23 per share on the stock position, and the $2.87 premium barely dents that. Covered calls reduce your cost basis slightly; they do not protect against large declines. The SEC's investor education materials remind retail investors that options strategies do not eliminate market risk.

**Risk 3 — Early assignment.** American-style options (standard U.S. equity options) can be exercised by the buyer at any time before expiration, not just on the last day. Early assignment is uncommon but happens most often when a call goes deep in the money or just before an ex-dividend date. If you're assigned early, your 100 shares are sold at the strike price immediately. This is generally not catastrophic — you still collect the premium and the strike price — but it can create an unexpected taxable event.

**A note on taxes.** In the U.S., the IRS treats covered-call premiums as short-term capital gains in most cases, regardless of how long you've held the stock. Selling a call can also affect the holding period of your shares under IRS "qualified covered call" rules, which may impact whether your stock gains qualify for long-term rates. Canadian investors should check CRA guidance on options income, as premiums are generally treated as capital gains or income depending on your trading frequency. Consult a tax professional before your first trade.

Step-by-Step: Placing the Trade in Your Brokerage Account

Every major broker — Fidelity, Schwab, TD Direct (Canada), IBKR, Tastytrade — has a slightly different interface, but the steps are the same.

**1. Confirm you have options approval.** You need at least Level 1 options approval (sometimes called "covered calls only") from your broker. FINRA requires brokers to assess your experience and financial situation before granting options trading. Apply through your account settings if you haven't already.

**2. Navigate to the options chain.** Search your stock ticker, then find the "Options" or "Options Chain" tab. You'll see a grid of calls (left side) and puts (right side) organized by strike price and expiration date.

**3. Select your expiration date.** Click the expiration tab that's 30-45 days out.

**4. Find your strike and check the bid/ask.** Locate the strike you want. The "bid" is what buyers will pay you right now. The "ask" is higher. Place a limit order between the bid and ask — usually at the midpoint — to avoid giving away money on the spread.

**5. Enter the order.** - Action: Sell to Open - Contracts: 1 - Strike: your chosen price - Expiration: your chosen date - Order type: Limit (never use market orders on options) - Price: your limit price

**6. Review and submit.** Double-check the order ticket. One contract = 100 shares. Confirm the premium shown matches your expectation, then submit.

**7. Manage or let it expire.** If the stock moves sharply against you (up or down), you can buy the call back ("Buy to Close") to exit the position early. Many experienced covered-call sellers close the position when they've captured 50% of the original premium, then sell a new one — a technique called "rolling."

Is Selling Covered Calls Right for You?

Covered calls work best when you: - Already own at least 100 shares of a stock you're comfortable holding long-term - Are willing to sell those shares at the strike price if assigned - Want to generate income in flat or slowly rising markets - Understand that you're trading away some upside for immediate cash

They work less well when you: - Own a stock you expect to surge significantly in the near term - Can't afford to have your shares called away (for example, if selling would trigger a large tax bill you're not prepared for) - Are counting on the premium to cover living expenses and can't tolerate the stock dropping

The OIC offers free courses and simulators at their website specifically designed for retail investors learning covered calls. CBOE also publishes historical data on the CBOE S&P 500 BuyWrite Index (BXM), which tracks a systematic covered-call strategy on SPY — useful for understanding long-run performance expectations.

Start with one contract on a stock you know well. Track the outcome. Adjust your strike and expiration choices based on what you learn. Most successful covered-call sellers spend their first few months experimenting with small positions before scaling up.

Do I need exactly 100 shares to sell a covered call?

Yes. One standard U.S. equity options contract covers exactly 100 shares, as standardized by the Options Clearing Corporation. If you own 150 shares, you can sell one covered call; if you own 200, you can sell two. Owning fewer than 100 shares means you cannot sell a standard covered call on that position.

What happens to my 100 shares if the covered call gets assigned?

If the stock closes above your strike price at expiration, your 100 shares are sold automatically at the strike price — this is called assignment. You keep the premium you collected plus the proceeds from the share sale. The transaction settles like a normal stock sale and may trigger a taxable event, so check with a tax professional.

How much money can I make selling one covered call?

It depends on the stock price, strike you choose, and time to expiration. On a $200 stock, a 30-day out-of-the-money call might pay $1.50 to $4.00 per share, or $150 to $400 per contract. That's roughly 0.75% to 2% per month on the position value, though actual premiums vary with market volatility.

Can I sell a covered call in a retirement account like an IRA or RRSP?

In the U.S., most IRA custodians allow covered calls with the appropriate options approval level, since the strategy is considered low risk. In Canada, covered calls are permitted inside a RRSP or TFSA at most major brokers, though you should confirm with your specific institution. Tax treatment inside registered accounts differs from taxable accounts, so review CRA or IRS guidance for your situation.

What is the best strike price to choose for a covered call?

There is no single best strike — it depends on your goals. A common beginner approach is to target a call with a delta between 0.20 and 0.30, which gives roughly a 70-80% probability of keeping your shares and the full premium. Higher strikes mean less premium but more room for the stock to run; lower strikes mean more premium but a higher chance of assignment.

What if the stock drops after I sell the covered call?

The premium you collected slightly reduces your loss, but it does not protect you from a significant decline. If you sold a call for $2.87 and the stock drops $15, you still lose roughly $12.13 per share net. Covered calls are an income tool, not a hedge — the SEC reminds investors that options strategies do not eliminate downside market risk.