How to Find and Sell a Covered Call on Charles Schwab (thinkorswim Step-by-Step)

The Short Answer: How to Sell a Covered Call on thinkorswim

To sell a covered call on Charles Schwab's thinkorswim platform, open the Trade tab, pull up your stock's options chain, select an expiration date and out-of-the-money strike, then place a Sell to Open order for one contract per 100 shares you own. The whole process takes under five minutes once your account has options approval. This guide walks you through every click, plus a real AAPL example so you can see exact numbers before you trade.

What You Need Before You Start

Three things must be in place before you can sell a covered call on thinkorswim.

1. Options approval at Tier 1 (covered calls). Schwab requires you to apply for options trading. Log in, go to Account > Upgrade Features > Options Trading, and complete the short questionnaire. FINRA Rule 2360 requires brokers to verify that options strategies are suitable for each customer, so Schwab will ask about your income, net worth, and experience. Covered calls are the most basic level — most applicants get approved within one business day.

2. At least 100 shares of the underlying stock. Each standard equity options contract covers exactly 100 shares. If you own 250 shares of AAPL, you can sell at most two contracts (covering 200 shares) and leave 50 shares uncovered.

3. A margin or cash account with enough equity. Schwab can hold your shares as collateral for the short call. No additional cash margin is required for a true covered call, but your shares will be flagged as collateral until the position closes.

Navigating the thinkorswim Options Chain

Open thinkorswim (desktop or web — the layout is nearly identical). At the top, click the Trade tab, then type your ticker in the symbol box and hit Enter. You will land on the stock's main quote page.

Scroll down to the Options Chain panel. If it is collapsed, click the small arrow to expand it. You will see a grid with expiration dates on the left and two columns of strikes — Calls on the left side, Puts on the right. Each row shows Bid, Ask, Last, Volume, Open Interest, Delta, and Implied Volatility (IV) for that strike.

Key columns to read: - Bid: the highest price a buyer will pay right now. When you sell, you receive close to this price. - Ask: the lowest price a seller will accept. The spread between Bid and Ask is your transaction friction. - Delta: how much the option price moves per $1 move in the stock. A delta of 0.20 means the call is roughly 20% likely to expire in-the-money, a useful shorthand from the Options Industry Council (OIC). - Open Interest: total open contracts. Higher is better — it means tighter spreads and easier fills.

Worked Example: Selling a Covered Call on AAPL

Let's say it is a Tuesday morning and AAPL is trading at $213.50. You own 100 shares. You want to collect income without giving up too much upside.

Step 1 — Choose an expiration. Click the expiration row for the Friday that is 16 days away (a standard monthly or weekly cycle). The Options Industry Council recommends 30–45 days to expiration (DTE) as a sweet spot for premium decay, but 14–21 DTE works well for weekly income traders.

Step 2 — Pick a strike. You scan the call side and spot the $220 strike showing a Bid of $1.42 and an Ask of $1.48, with a delta of 0.22. That strike is about 3% above the current price — out-of-the-money, so AAPL would need to rally $6.50 before your shares get called away.

Step 3 — Right-click the Bid price on the $220 call row. A context menu appears. Select Sell > Single. thinkorswim auto-populates an order ticket: - Action: Sell to Open - Quantity: 1 contract - Type: Limit - Price: $1.42 (the current bid)

Step 4 — Adjust the limit price. Do not just hit Send at the bid. Type $1.45 — the midpoint of the $1.42/$1.48 spread. You are asking for a slightly better fill. For liquid names like AAPL, mid-fills are common.

Step 5 — Confirm and send. Review the order confirmation screen. It will show your maximum gain ($145 in premium per contract, or $1.45 × 100), your effective sell price if assigned ($220 + $1.45 = $221.45), and the expiration date. Click Confirm and Send.

Step 6 — Monitor. Your position now appears under Monitor > Activity and Positions. The short call shows as a negative quantity (e.g., -1 AAPL 220 Call). If AAPL stays below $220 through expiration, the option expires worthless and you keep the full $145. If AAPL closes above $220, Schwab will automatically exercise assignment and sell your 100 shares at $220 — you still keep the $145 premium on top.

Real Risks You Should Know Before Placing the Trade

Covered calls are not risk-free. Here are the three risks that matter most.

Capped upside. Once you sell the $220 call, your profit above $220 belongs to the buyer. If AAPL rockets to $240 before expiration, you sell at $220 and miss the extra $20 per share ($2,000 on 100 shares). The premium you collected ($145) does not come close to covering that opportunity cost.

Downside is not protected. The $1.45 premium reduces your cost basis by $1.45 per share — that is it. If AAPL drops from $213.50 to $190, you lose $23.50 per share minus the $1.45 premium, for a net loss of $22.05 per share. Covered calls soften losses slightly but do not hedge them. FINRA's investor education materials make this point explicitly: a covered call is an income strategy, not a protection strategy.

Early assignment. American-style equity options (which AAPL uses) can be assigned any time before expiration, not just at expiry. This is rare but happens most often the day before an ex-dividend date. If you get assigned early, Schwab sells your shares immediately. The OIC's free resources cover early assignment mechanics in detail.

Tax treatment. In the US, the IRS treats covered call premiums as short-term capital gains in the year the position closes, regardless of how long you have held the stock. Selling a call can also suspend the holding period clock on your shares under IRS rules for qualified covered calls — which matters if you are trying to qualify for long-term capital gains rates. In Canada, the CRA treats option premiums as income or capital depending on your trading frequency and intent. Consult a tax professional before trading in a taxable account.

How to Close or Roll the Position Before Expiration

You do not have to hold a covered call until expiration. You can buy it back at any time.

To close: Go to Monitor > Positions, right-click your short call, and select Buy to Close. Place a limit order at or near the current ask price. If the stock has dropped and the call has lost most of its value — say it is now worth $0.15 — buying it back for $15 locks in $130 of your $145 maximum gain and frees your shares from the obligation.

To roll: Rolling means closing the current call and opening a new one at a later expiration or higher strike in a single order. In thinkorswim, right-click the position and select Roll. The platform builds a spread order automatically — one leg buys back the old call, the other sells the new one. You want to collect a net credit (more premium in than out) when rolling. Rolling is a common technique for managing a call that is moving into the money as the stock rallies.

Quick Settings Checklist for thinkorswim

Before you place your first covered call trade, confirm these platform settings:

- Options chain layout: Set to 'Calls and Puts' view so you see both sides. Use the gear icon in the chain header to add Delta and Open Interest columns if they are not visible. - Order type: Always use Limit orders, never Market orders on options. Market orders on illiquid strikes can result in terrible fills. The SEC's Office of Investor Education warns retail investors about wide bid-ask spreads in options markets. - Quantity check: Confirm the contract quantity matches your share count divided by 100. One contract = 100 shares. - Good-til-Canceled vs. Day order: For covered calls, a Day order is usually fine. If you want the order to persist, use GTC (Good-til-Canceled), but check it each morning. - Notifications: Enable email or push alerts for assignment and expiration events under Client Services > Notifications.

Do I need options approval to sell covered calls on Charles Schwab?

Yes. Schwab requires Tier 1 options approval before you can sell covered calls. You apply through the platform under Account > Upgrade Features > Options Trading. FINRA Rule 2360 requires all brokers to verify suitability, so you will answer a short questionnaire about your experience and finances. Most applicants are approved within one business day.

How many contracts can I sell if I own 200 shares of a stock?

You can sell a maximum of two contracts, since each standard equity options contract covers exactly 100 shares. Selling more than two contracts would create a naked (uncovered) call on the excess, which requires higher options approval and carries unlimited risk. Always match your contract count to your share lot.

What strike price should I choose when selling a covered call?

Most income-focused traders sell strikes that are 3–7% out-of-the-money, which corresponds to a delta of roughly 0.15–0.30 on the options chain. A lower delta means less chance of assignment but also less premium collected. The right strike depends on how much upside you are willing to give up versus how much income you want to generate.

What happens if my covered call expires in the money on thinkorswim?

If the stock closes above your strike at expiration, Schwab will automatically sell your 100 shares at the strike price — this is called assignment. You keep the premium you collected plus any gain from your purchase price up to the strike. You no longer own the shares after assignment, so plan accordingly if you want to continue holding the stock.

Are covered call premiums taxed as ordinary income or capital gains in the US?

The IRS generally treats covered call premiums as short-term capital gains in the year the position closes, not when you receive the premium. Additionally, selling a call can suspend the holding period on your underlying shares under IRS qualified covered call rules, which may affect your eligibility for long-term capital gains rates. Speak with a tax advisor before trading covered calls in a taxable account.

Can I sell a covered call on thinkorswim using the mobile app?

Yes. The thinkorswim mobile app supports covered call orders through the same Trade tab workflow. Tap the ticker, scroll to the options chain, select your expiration and strike, then tap the bid price and choose Sell to Open. The mobile interface is slightly simplified compared to desktop but executes the same order types, including limit orders.