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Covered Call Return Calculator

Enter your stock price, strike, premium and days to expiry to see what a covered call really pays.

How it is calculated

All prices are per share. Collecting the premium lowers your cost basis: net cost = stock price − premium, also shown as the breakeven. If the stock stays below the strike and the call expires, static return = premium / net cost × 100. If the stock is called away at the strike, if-called return = (premium + strike − stock price) / net cost × 100. The annualized figure is simple, not compounded, and is based on the if-called return: annualized = if-called return × 365 / days to expiry. The static return is not annualized. The tool ignores dividends, commissions, taxes and early assignment, and the premium must leave a positive net cost.

Worked example

Stock at 100, call strike 105, premium 2.50, 30 days to expiry. Step 1: net cost = 100 − 2.50 = $97.50, the breakeven. Step 2: static return = 2.50 / 97.50 = 2.56%. Step 3: if called, you also gain 5 up to the strike, so (2.50 + 105 − 100) / 97.50 = 7.50 / 97.50 = 7.69%. Step 4: annualized = 7.69 × 365 / 30 = 93.59%. That annualized number assumes you can repeat the same trade every 30 days, which is rarely guaranteed.

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Common mistakes

  • Entering the premium for the whole contract (100 shares) instead of per share. A quoted premium of 2.50 is $250 per contract, so enter 2.50 with a per-share stock price.
  • Quoting the annualized figure as expected profit. It repeats a 30-day result 12 times and ignores that the shares may be called away and that the next premium will differ.
  • Comparing a static return with an annualized return as if they used the same basis. The annualized result here is built from the if-called return, not from the static one.
  • Using a strike below the stock price (an in-the-money call) and forgetting that if-called return can then be lower than the static return, because the premium partly pays back the lost value.
  • Ignoring dividends, taxes and fees. The tool shows a price-only return, so real results will differ.

Sources

About this calculator

A covered call write sells a call option against stock you already own, and its real return depends on which of two outcomes happens: the stock stays below the strike and the option expires worthless (the "static return"), or the stock rises above the strike and your shares get called away (the "if-called return"). Static return is roughly premium ÷ (stock price − premium), and if-called return adds the capital gain up to the strike: (premium + (strike − stock price)) ÷ (stock price − premium); the if-called return is then annualized by multiplying by 365 ÷ days to expiration to compare trades of different lengths, while the static return is shown for the period itself.

Options income traders and covered-call fund managers compute both numbers before placing a trade because the premium alone can be misleading — a high premium on a short-dated, deep in-the-money call can look attractive but produce a lower annualized return than a smaller premium on a longer-dated, out-of-the-money call.

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