Covered Call Calculator
Calculate premium income, net cost basis, break-even and the return if assigned when writing calls against shares.
A covered call is shares you already own with a call written against them. The premium is received immediately and kept whatever happens; in exchange, any gain above the strike belongs to the buyer of the call rather than to you. This covered call calculator puts numbers on that exchange, and it assumes the shares are already held — it is for writing calls against a position, not uncovered ones.
Formula: net cost basis = purchase price - premium; assigned profit = (strike - cost + premium) x shares
Your figures
Strike of the call you are writing.
Share price now, to check whether the call is in the money.
100 on US equity options.
Results
Premium received
US$1,500.00
writing 5 contracts for 30 days
- Contracts you can write
- 5 · 500 shares covered
- Net cost basis after premiumAlso your break-even share price.
- US$92.00
- Profit if assigned at the strike
- +US$4,000.00
- Return if assigned
- 8.42% · 102.46% annualised
- Return from the premium aloneIf the option expires worthless and you keep the shares.
- 3.16% · 38.42% annualised
- Position value at the current price
- US$50,500.00
What this means
Writing 5 calls brings in US$1,500.00, which lowers the effective cost of the shares to US$92.00 and moves the break-even down to the same level. Below the strike the calls expire worthless, the premium is kept and the shares are retained. The trade exchanges uncertain upside for certain premium — that is the whole mechanism, in both directions.
- The annualised figures assume the same return could be repeated all year. Nothing guarantees that: premiums vary, and a single assignment ends the position.
- American options can be assigned early, particularly just before a dividend goes ex.
- The downside is unchanged from simply holding the shares, less the premium received. A covered call reduces the loss on a fall — it does not prevent one.
Premium received: US$1,500.00
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About the Covered Call calculation
That is the whole trade, in both directions: uncertain upside exchanged for certain premium. Below the strike the option expires worthless, the premium is kept and the shares are retained. Above it the shares are called away at the strike and everything beyond that level is forgone.
It works out the call premium income, the effective cost basis once that premium is deducted, the break-even share price, and the covered call return in both outcomes — expressed annually so different expiries can be compared.
Covered Call formula
contracts = floor(shares ÷ shares per contract)
premium = premium per share × shares covered
net cost basis = purchase price − premium per share
break-even = net cost basis
if assigned = (strike − purchase price + premium) × shares
annualised = period return × 365 ÷ days to expiry- net cost basis
- Effective price paid for the shares once the premium is deducted.
- assigned
- The call finishes in the money and the shares are sold at the strike.
- annualised
- The period return scaled to a yearly rate for comparison.
The premium lowers the effective cost of the shares, which moves the break-even down by exactly that amount. Buying at 95 and receiving 3 means the position is level at 92 rather than 95 — the premium provides a genuine, if limited, cushion against a fall.
Only whole contracts can be written, so 550 shares support five contracts and 50 shares are left uncovered. The calculator writes the whole number and reports what is covered.
Annualising is useful for comparing a 30-day call against a 90-day one, but it is the figure most likely to mislead. It assumes the same return could be repeated all year, and nothing guarantees that: premiums vary with volatility, and a single assignment ends the position entirely.
The downside is unchanged from simply holding the shares, less the premium. A covered call reduces the loss on a fall; it does not prevent one, and a large fall costs almost as much as holding the shares outright.
Covered Call: a worked example
500 shares bought at 95, writing five 100-strike calls 30 days out for a premium of 3.00 per share.
- Contracts written500 ÷ 100 = 5
- Premium received3.00 × 500 = 1,500
- Net cost basis95 − 3 = 92.00
- Profit if assigned(100 − 95 + 3) × 500 = 4,000
- Return if assigned4,000 ÷ 47,500 = 8.4211%
- Annualised8.4211% × 365 ÷ 30 = 102.46%
1,500 received up front. If the shares are called away at 100 the position makes 4,000, an 8.42% return over 30 days. Below 100 the premium is kept and the shares are retained at an effective cost of 92.
How to use the Covered Call calculator
- Enter what you paid for the shares and how many you hold.
- Enter the strike of the call you intend to write and the premium per share it is trading at.
- Enter the days to expiry for the annualised figures.
- Enter the current share price to see whether the call is currently in the money and what upside would be given up.
- Compare the return if assigned against the return from premium alone — they are the two outcomes, and both are worth knowing before writing.
Limitations of the Covered Call calculator
Every calculation makes assumptions. These are the ones that matter here.
- The annualised figures assume the same return repeats all year. Premiums vary with volatility, and one assignment ends the position — treat them as a comparison tool, not a projection.
- American options can be assigned early, particularly just before a dividend goes ex, which can cost the dividend as well as the upside.
- Excludes commission on both the option and any share sale on assignment.
- Excludes tax. Assignment is a disposal and may realise a taxable gain at a time not of your choosing.
- The downside is essentially that of holding the shares. The premium cushions a small fall and is immaterial against a large one.
Frequently asked questions about Covered Call
What happens if the shares finish above the strike?
The call is assigned and the shares are sold at the strike. The premium is still kept, so the profit is the gain to the strike plus the premium — but any rise above the strike goes to the option buyer.
Does a covered call protect against a fall?
Only by the premium received. A 3.00 premium offsets the first 3.00 of decline and nothing beyond it. On a large fall the position loses nearly as much as holding the shares outright, which is the risk the strategy does not remove.
Why does the calculator write fewer contracts than I expected?
Because each contract covers a fixed number of shares — 100 on US equity options — and only whole contracts can be written. 550 shares support five contracts, leaving 50 uncovered.
Is the covered call annualised return realistic?
It is a comparison tool rather than a projection. It scales one period's return to a year, which assumes the same premium is available every period and that assignment never ends the position. Neither holds reliably.
Should I write calls above or below the current price?
This calculator does not recommend a strike. What it shows is the trade-off: a strike close to the current price earns more premium and is more likely to be assigned; a higher strike earns less and keeps more upside. Try several and compare both outcomes.
Last reviewed . See our methodology and editorial policy.
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