Covered Call Calculator

How to use the covered call calculator

1. Enter the stock price. The calculator assumes you buy the 100 shares at this price, so if you already own them and want to use your cost basis, enter that instead and keep in mind the probability figure then uses it as the starting price too.
2. Enter the strike of the call you plan to sell and the premium per share you expect to collect (the bid or mid from your broker's chain).
3. Enter the days to expiration and the call's implied volatility. The volatility only affects the probability of profit and the premium estimate button.
4. Set the number of contracts. One contract covers 100 shares.
5. Read the results: the credit, max profit if called away, max loss if the stock goes to zero, breakeven, return on risk, and annualized return.

How it's calculated

The position is modeled as 100 shares bought at the stock price plus one short call. At expiration the shares are worth the stock price and the call costs its intrinsic value to close, so profit or loss per share is (final price minus stock price) plus premium minus the call's intrinsic value. Above the strike the gain stops growing because the shares are called away at the strike.

The figures come from the same functions the OptionClaws scanner uses for covered calls, so a covered call scored here and one in a scan follow identical rules.

• Net credit: the call premium times 100. The share purchase is not counted in the credit.
• Max profit: (strike minus stock price plus premium) times 100, earned at any price at or above the strike.
• Max loss: (stock price minus premium) times 100, if the stock goes to zero. The premium is the only cushion.
• Breakeven: stock price minus premium.
• Return on risk: max profit divided by max loss, which is the return on the net cost of the shares if they are called away.
• Annualized return: return on risk times 365 divided by days to expiration, simple scaling.
• Capital required: the same as max loss, the net cost of the shares after the premium.
• Probability of profit: the lognormal-model chance the stock finishes above the breakeven, using your implied volatility and a 4.5% risk-free rate.

Assumptions and limitations

• Results are at expiration only. Before expiration the short call still carries time value, so the position's value differs from the chart.
• The probability is model-based, not a forecast of what the stock will do.
• Early assignment is ignored. In-the-money calls are sometimes assigned early, most often the day before an ex-dividend date.
• Dividends paid on the shares are not included, and neither are fees, commissions, or taxes.
• The shares are assumed bought at the stock price you enter; a different cost basis changes every figure.

Frequently asked questions

How do you calculate covered call return?

The return if called away is (strike minus stock price plus premium) divided by (stock price minus premium). With a $100 stock, a $105 strike, and a $1.65 premium, that is $6.65 divided by $98.35, about 6.8% for the trade before fees.

What is the breakeven on a covered call?

The stock price you paid minus the premium you collected. Below that price at expiration the position loses money; the call premium is the only protection.

Why is the max loss so large?

Because you own the shares. If the stock went to zero you would lose the share price minus the premium, the same as owning the stock outright less the small credit.

Is the annualized return what I will earn in a year?

No. It scales one trade's best-case return to a year so trades with different expirations can be compared. Repeating the trade every month would give different strikes, premiums, and outcomes.

Does the calculator account for dividends?

No. If the stock pays a dividend before expiration and you still hold the shares on the ex-dividend date, you receive it in addition to what the calculator shows, but in-the-money calls are more likely to be assigned early right before that date.

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