Updated Options Income Tool

Covered Call Calculator

Analyze covered call income, break-even price, maximum profit, downside protection, annualized yield and target income in one tool.

Income & Premium Break-Even & Max Loss Annualized Yield Target Income Shares

Advanced Covered Call Calculator

Switch between Position Summary, Expiration Scenario, Annualized Yield and Target Income modes to understand every part of a covered call strategy.

This scenario assumes one covered call position held to expiration with no early assignment.

Annualized yields are based on the days to expiration and assume you can repeat similar trades. Real results can differ.

This mode uses option premium and days to expiration to estimate monthly income. It is a simplified model and not a guarantee of future results.

Covered Call Calculator – Income, Yield, Break-Even and Maximum Risk

The Covered Call Calculator helps you analyze one of the most popular options income strategies. A covered call combines stock ownership with selling a call option against those shares. You collect option premium up front in exchange for capping your upside if the stock rises above the strike price.

This tool breaks down covered call metrics into easy views: position summary, outcome at expiration for different stock prices, annualized premium yield and the number of shares needed to target a specific income level. It is designed for education and planning and does not provide trading advice.

How a Covered Call Works

In a simple covered call, you:

  • Buy or already own shares of a stock.
  • Sell a call option with a chosen strike price and expiration date.
  • Receive premium income for selling that call.

If the stock stays below the strike price until expiration, the option typically expires worthless and you keep both the shares and the premium. If the stock closes above the strike price, the call is usually exercised and your shares are called away (sold) at the strike price. You still keep the premium, but your upside is capped.

Key Covered Call Metrics

  • Total premium income: Option premium per share multiplied by number of shares.
  • Break-even stock price: Purchase price minus premium per share.
  • Downside protection: Premium divided by stock price as a percentage.
  • Maximum profit: If called away at the strike, including premium received.
  • Maximum loss: If the stock goes to zero, net of premium received.
  • Annualized yield: Premium income over the option period scaled to a yearly rate.

Mode 1: Position Summary

The Position Summary tab focuses on the static characteristics of a covered call position.

Inputs

  • Stock purchase price
  • Call strike price
  • Call premium per share
  • Number of shares

Formulas

Total Premium = Premium per Share × Number of Shares
Break-Even Price = Stock Purchase Price − Premium per Share
Maximum Profit per Share = (Strike Price − Purchase Price) + Premium per Share
Maximum Loss per Share = Purchase Price − Premium per Share

Total profit or loss figures are these per-share amounts multiplied by the number of shares. Downside protection is premium per share divided by purchase price, expressed as a percentage. Return if called is maximum profit divided by total stock cost.

Mode 2: Expiration Scenario

The Expiration Scenario tab answers the question: “What happens to my covered call at a specific stock price on expiration day?” You enter the stock price at expiration and the calculator determines whether the option would likely be exercised and what your net result would be.

Scenario Logic

  • If stock price at expiration is at or above the strike: the option is assumed exercised and shares are called away at the strike price.
  • If stock price at expiration is below the strike: the option is assumed to expire worthless and you keep the shares.

In both cases, the premium received initially is added to the stock sale proceeds (if called) or combined with the ending stock value (if not called) to calculate your net profit or loss and return on initial cost. The calculator also shows the effective sale price if called, which is strike price plus premium per share.

Mode 3: Annualized Premium Yield

The Annualized Yield tab focuses on the income side of covered calls. It measures how much yield you generate from option premium over the option’s life and what that translates to on an annualized basis.

Formulas

Period Yield% = Premium per Share ÷ Stock Purchase Price × 100
Annualized Yield% ≈ Period Yield% × (365 ÷ Days to Expiration)

The tool also calculates total premium received (premium per share times number of shares) and the capital at risk (stock purchase price times number of shares). This helps you compare covered call income potential with other yield-focused investments.

Mode 4: Target Monthly Income

The Target Income tab estimates how many shares you might need to generate a specific monthly income target by repeatedly selling covered calls under similar terms.

Inputs

  • Desired monthly income from covered calls
  • Stock purchase price
  • Option premium per share
  • Days to expiration for each call cycle

Approach

The calculator converts the premium for the option period into an approximate monthly amount and then computes the number of shares required to reach your target income. It then shows the approximate number of contracts (lots of 100 shares) and the estimated capital required (shares times stock purchase price). The results assume you can consistently sell calls at similar premiums and time frames, which may not always be the case in real markets.

Why Use a Covered Call Calculator?

Covered calls can look simple but involve several moving parts: stock price, strike selection, time to expiration, premium level, and your risk tolerance. This calculator helps you understand:

  • How much downside protection the option premium really provides.
  • What your break-even stock price is.
  • How much profit you give up if the stock rallies strongly.
  • Whether the premium yield is attractive on an annualized basis.
  • How many shares you might need for a desired level of income.

By seeing all these metrics clearly, you can better compare different strikes and expirations, or decide if covered calls fit your overall investment plan.

Limitations and Risk Considerations

The calculator uses simplified assumptions: a single covered call position held to expiration, no early assignment, and no changes in volatility or interest rates. In real trading, early assignment, changing premiums and transaction costs can affect outcomes.

Covered calls can reduce upside potential and do not eliminate downside risk. If the stock price falls significantly, the premium only offsets part of the loss. It is important to evaluate the underlying stock quality and your time horizon before using this strategy.

Examples of Covered Call Calculations

Example 1: Basic Covered Call Setup

You buy 100 shares at $50 and sell a call with a $55 strike for $2 per share:

  • Total premium: $200
  • Break-even: $48
  • Maximum profit if called: ($55 − $50 + $2) × 100 = $700
  • Maximum loss: ($50 − $2) × 100 = $4,800 if the stock goes to zero

Example 2: Expiration Scenario

Using the same setup, if the stock finishes at $53 at expiration, the call is likely exercised only if it is in the money at or above the strike. If the stock closes slightly below the strike and the call expires worthless, you keep the shares at $53 and the $200 premium, giving a smaller but still positive return. The Scenario tab allows you to test both possibilities precisely.

Example 3: Annualized Yield

If the $2 premium on a $50 stock is for a 30-day option:

  • Period yield: 2 ÷ 50 × 100 = 4%
  • Annualized yield: roughly 4% × (365 ÷ 30) ≈ 48.7% (theoretical, assuming you can repeat similar trades)

How to Use This Tool Effectively

  • Use the Position Summary tab to understand risk, reward and break-even for a proposed covered call.
  • Use the Expiration Scenario tab to see how different stock prices at expiration affect your result.
  • Use the Annualized Yield tab to compare covered call income against other yield strategies.
  • Use the Target Income tab to estimate how many shares you might need to reach an income goal, then evaluate if the capital required fits your plan.

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Covered Call Calculator FAQs

Frequently Asked Questions About Covered Calls

Understand the basics of covered call income, risk and yield before using this strategy.

Yes. If the stock declines significantly, losses on the stock can exceed the premium received from selling the call. The premium provides some downside protection but does not remove stock risk.

If the stock is above the strike at expiration, the call is usually exercised and your shares are sold at the strike price. You keep the premium but do not participate in any further upside above the strike plus premium.

Not necessarily. Covered calls are one strategy among many and may not fit every investment goal. They reduce upside potential and may not be suitable if you expect strong price appreciation or do not want your shares called away.

No. The calculator focuses on core pricing relationships. Actual returns may differ once commissions, bid–ask spreads and taxes are considered.

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