Covered call calculator
See how selling a call option changes the outcome of owning stocks: the premium adds return, and gains above the strike are given up.
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See how a covered call changes the outcome
Hypothetical illustration of a single option period, before fees, expenses and taxes, ignoring dividends. Not the performance of any fund.
How it works
A covered call pairs a stock or index position with a sold call option. The seller collects a premium up front and agrees to give up gains above the strike price for the option period. Covered call ETFs apply the same idea across a portfolio.
Formula. Covered call return = the lower of the stock return and the strike, plus the premium. If the stocks rise past the strike, the gain stops at the strike; if they fall, the premium offsets part of the loss.
Worked example. With a 5% strike and a 2% premium, a stock gain of 8% becomes 5% plus 2%, or 7%. A stock loss of 10% becomes minus 10% plus 2%, or minus 8%. Hypothetical, before fees and expenses.
Assumptions. One option period, a single strike and premium, no dividends, taxes, fees or trading costs. Real funds sell options on many dates and strikes, and premiums change with market volatility.
FAQ
Frequently asked questions
How does a covered call change returns?
It adds the option premium to the return and caps gains at the strike for the option period. In falling markets the premium offsets part of the loss; in strong rising markets the position trails the stocks.
What is the strike in a covered call?
The strike is the price above which gains are given up to the option buyer. A higher strike leaves more upside but usually brings a smaller premium.
Does a covered call reduce losses?
Only by the amount of premium collected. Losses beyond the premium remain. A covered call is not a hedged or buffered strategy.
Is the result the same as a covered call ETF?
No. This is a simplified single-period illustration. A fund sells options over many periods and its results depend on its own strategy, costs and market conditions.
Learn more
- What Is a Covered Call ETF and How Does It Work?
- How Do Covered Call ETFs Behave in Falling, Flat and Rising Markets?
- How Should You Compare Covered Call ETFs?
- Covered Call and Option Income ETFs: A Guide
- All ETF calculators and tools
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For educational purposes only. This material is not investment, legal or tax advice, and it is not a recommendation or offer to buy or sell any security. Figures from third-party sources are believed to be reliable as of the dates shown but are not guaranteed. Investments involve risk, including possible loss of principal.