Covered Call Return Calculator

A covered call is a call option sold against shares already held. The premium is received up front and kept whether or not the option is exercised, which lowers the effective cost of the holding, and in exchange the upside is capped at the strike. Annualised yields vary widely with volatility and strike selection, so the figure here describes one contract on one set of terms rather than a rate the approach pays.

Example: own 100 shares at 50 (5,000 stock value). Sell 30-day call at 55 strike for 1.50 premium = 150 income. Annualised yield: 150 / 5,000 × (365/30) = 36.5% annualised. If stock stays below 55: keep premium and shares, repeat. If stock exceeds 55: shares called away at 55 (500 capital gain) + 150 premium = 650 total return on 5,000 = 13% in 30 days.

Covered calls are commonly used on stocks an investor would be content to sell at the strike price. They are less suited to high-growth stocks, where they cap upside while leaving downside exposure, and are more often applied to dividend payers and stable large-caps. The wheel is a related pattern: sell covered calls, and where the shares are called away, sell cash-secured puts to re-enter. Premium arrives in each case, and what it costs is the part of a rally above the strike.

A worked example

With the defaults: current stock price of 50, call strike price of 55, premium per share of 1.5, days to expiry of 30. The tool returns 150.00.

What moves the number most

The headline is premium income, the premium per share multiplied by the shares covered, so only those two inputs move it and both move it exactly in proportion. The stock price, the strike and the days to expiry leave it untouched and act on the rows beneath instead.

Each of those three reaches a different row. The stock price sets the denominator of both yield rows, so a 1% higher price lowers each by 0.99%, and it raises the break-even price by 1.03% while cutting the max-profit-if-called figure by 7.69%. Days to expiry reaches the annualised yield alone and reaches it reciprocally, so a 1% longer window lowers that yield by the same 0.99%. The strike reaches the max-profit-if-called row alone, lifting it 8.46% for a 1% higher strike at the sample figures.

The share count behaves differently again. It scales premium income and the max-profit figure one for one, and leaves both yield rows and the break-even price exactly where they were, because the count cancels out of the yield ratio and never enters the break-even at all. The period yield reduces to the premium divided by the stock price, and the break-even to the stock price less the premium, so neither depends on position size.

The formula behind this

Premium income = premium per share × shares. Annualised yield = yield × 365/days.