Covered Call Income Estimator
You own the stock. Someone will pay you rent for the right to buy it from you at a fixed price. See exactly what that rent is worth, what it costs you in capped upside, and where the trade breaks even.
Your inputs
Payoff at expiration
Three scenarios
| Scenario | Stock at expiry | P&L |
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What a covered call actually is
You hold 100 shares of a stock and sell a call option against them: for a premium paid up front, the buyer gets the right to purchase your shares at the strike price any time before expiration. If the stock stays below the strike, the option expires worthless and you keep the premium plus your shares. If it rises above, your shares are "called away" — you're assigned and sell at the strike. Either way, the premium is yours to keep.
The tradeoff, stated plainly
A covered call converts uncertain upside into certain income. You get paid now; in return, you agree not to participate in any rally beyond the strike. It suits stocks you'd be happy to sell at the strike price anyway — then assignment isn't a loss, it's the plan working. It does not suit stocks where you'd be heartbroken to be sold out of a moonshot.
Why the annualized yield flatters short-dated options
Annualizing multiplies this month's premium by twelve, as if you could sell the same rich premium every single month forever. In practice, premiums shrink when volatility falls, the stock gets called away (ending the cycle), and some months offer no trade worth taking. A 30% annualized yield on a 30-day option is a run-rate — useful for comparing options against each other, not a forecast of your year.
Annualized yield = (premium ÷ stock price) × (365 ÷ days) × 100
Max profit = (strike − price) × shares + premium income
Breakeven = price − premium
Worked example
100 shares bought at $100, $105 strike, $2.50 premium, 30 days. You collect $250 today — a 30.42% annualized yield on the $10,000 position. If the stock is at or above $105 at expiry, your shares are called away: $500 of stock gains plus $250 premium = $750 max profit. Your breakeven is $97.50 — the stock can fall 2.5% and you lose nothing. If it falls 10% to $90, you're down $750 net: the premium cushioned, but didn't prevent, the loss.
Caveats worth knowing
- Assignment can happen early. American-style options can be exercised before expiry — usually around ex-dividend dates. Don't count on holding to the last day.
- Taxes can sting. Assignment may convert a long-term holding into a taxable sale sooner than planned, and in some cases resets your holding period. Check your jurisdiction's rules.
- One contract covers 100 shares. Selling more calls than shares you own turns the trade into a naked call — a completely different, far riskier position this calculator doesn't model.