Covered Call Calculator

What Is a Covered Call?

A covered call involves buying (or already owning) 100 shares of stock and selling one call option against those shares. You collect a premium upfront that reduces your cost basis in the stock. The strategy is called “covered” because the stock position covers the obligation of the short call.

This is a popular income strategy for investors with a neutral-to-moderately-bullish outlook. You profit when the stock stays flat, rises modestly, or even declines slightly (as long as it stays above your breakeven). Your upside is capped at the strike price because the short call obligates you to sell shares if exercised.

Key Characteristics

• Max Profit: (K - Stock Price + Premium) × 100 × Qty. Occurs when S ≥ K at expiration (shares are called away at the strike).
• Max Loss: (Stock Price - Premium) × 100 × Qty. Occurs if the stock falls to $0 (you lose the full position value minus the premium collected).
• Breakeven: Stock Price - Premium per share
• Outlook: Neutral to moderately bullish
• Cost: Net debit (stock purchase cost minus call premium received)
• Time Decay: Benefits the short call leg — the option loses value as time passes, which helps the covered call seller

How to Read the P/L Chart

The solid blue line (At Expiration) shows the covered call payoff: profit rises linearly as the stock price increases from the breakeven toward the strike, then flattens at the strike price (profit is capped because the short call is exercised and shares are sold). Below the breakeven, the position shows a loss that increases as the stock falls.

The dashed dark blue line (Today / T+0) represents the theoretical P/L at trade entry, computed using Black-Scholes for the short call. The smooth curve shows how the position value changes with the stock price while time value remains in the option.

IV Mode vs. Premium Mode

IV Mode: Enter implied volatility, and the calculator uses Black-Scholes to estimate the call premium. This mode also enables the “Today (T+0)” P/L curve on the chart, showing theoretical value before expiration.

Premium Mode: Enter the exact premium you received (or expect to receive). Useful when you know the actual market price. Only the expiration payoff curve is shown because IV is needed to compute theoretical values before expiration.

When to Use a Covered Call

• You own (or are buying) 100 shares and want to generate income from selling the call
• You have a neutral-to-moderately-bullish outlook on the stock
• You are willing to sell shares at the strike price if the option is exercised
• You want to reduce your cost basis in the stock position
• You understand that your upside is capped at the strike price