How to Sell a Covered Call on Fidelity: Step-by-Step Guide

The Short Answer: Yes, You Can Do This in About Five Minutes

To sell a covered call on Fidelity, you need at least 100 shares of a stock, options trading approval (Level 1 Covered Calls), and a few clicks inside Fidelity's Trade Tickets interface. The whole process takes under five minutes once your account is approved. This guide walks you through every step, shows you a real numbers example using Apple (AAPL), and flags the risks you need to understand before you place your first trade.

Step 1 — Get Options Approval on Your Fidelity Account

Fidelity uses a tiered options approval system. Selling covered calls falls under Level 1, which is the most basic tier. To apply, log in to Fidelity.com, go to Accounts & Trade → Account Features → Brokerage & Trading → Options. Click 'Enable' and complete the short application.

Fidelity will ask about your investing experience, annual income, net worth, and investment objectives. Answer honestly — FINRA Rule 2360 requires brokers to collect this information before approving options trading. Most retail investors with a few years of stock experience and a moderate risk tolerance get Level 1 approval within one business day, sometimes instantly.

If you already have a margin or brokerage account in good standing, approval is usually straightforward. Retirement accounts (IRAs) can also be approved for covered calls at Fidelity, but you cannot use margin inside an IRA, so your shares must be fully paid.

Step 2 — Make Sure You Own at Least 100 Shares

One standard options contract covers exactly 100 shares. If you own 250 shares of a stock, you can sell two covered calls (covering 200 shares) and the remaining 50 shares stay uncovered. You cannot sell a covered call against fewer than 100 shares — Fidelity's system will reject the order.

Check your positions by going to Accounts → Positions. Confirm the share count and note your average cost basis. That cost basis matters for tax purposes, which we cover later in this article.

Step 3 — Choose Your Strike Price and Expiration Date

This is the most important decision you will make. The strike price is the price at which you agree to sell your shares if the buyer exercises the option. The expiration date is when the contract ends.

Here is a real worked example using AAPL. Suppose AAPL is trading at $213.00 on a Monday morning. You own 100 shares. You want to generate income without giving up your shares too easily.

You look at the options chain for the expiration 21 days out (three weeks). You see: - $215 strike (out-of-the-money by about 0.9%): bid $2.10, ask $2.20 - $220 strike (out-of-the-money by about 3.3%): bid $1.05, ask $1.15 - $225 strike (out-of-the-money by about 5.6%): bid $0.48, ask $0.55

If you sell one contract at the $215 strike for a $2.10 premium (the bid price), you collect $210 immediately (100 shares × $2.10). That is your income no matter what happens next. Your breakeven on the downside drops from $213.00 to $210.90. Your upside is capped at $215 — if AAPL closes above $215 at expiration, your shares will likely be called away at $215.

The delta on the $215 strike is roughly 0.45, meaning the market estimates about a 45% chance of assignment. The $220 strike has a delta near 0.28 — lower premium, lower assignment risk. The right choice depends on your goals. The Options Industry Council (OIC) publishes free educational material on how delta relates to assignment probability, which is worth reading before you trade.

Step 4 — Place the Trade Inside Fidelity's Platform

Once you know your strike and expiration, here is exactly how to enter the order on Fidelity.com:

1. Go to Trade → Options. 2. Enter your ticker symbol (e.g., AAPL) and click 'Get Quote.' 3. Select the expiration date from the dropdown menu. 4. Find your chosen strike in the calls column. Click 'Sell to Open' next to it. 5. Set the number of contracts (1 contract = 100 shares). 6. Choose your order type. 'Limit' is almost always better than 'Market' for options. Set your limit price at or near the bid — for example, $2.10 in our AAPL example. 7. Set the time-in-force to 'Day' or 'Good Till Canceled' depending on how patient you are. 8. Review the order ticket. Fidelity will show you the estimated premium you will receive and confirm the trade is covered by your existing shares. 9. Click 'Place Order.'

Fidelity's Active Trader Pro desktop platform works the same way but gives you a more detailed options chain view. Either platform works fine for covered calls.

One tip: always use a limit order. Options spreads can be wide, especially on less liquid names. Placing a limit order between the bid and the ask — called 'price improvement' — often gets you filled a few cents better than the bid. On 100 shares, even $0.05 better is $5 in your pocket.

What Are the Real Risks Here?

Covered calls are considered one of the more conservative options strategies, but they carry real risks you should not gloss over.

Assignment risk: If AAPL closes above $215 at expiration, the buyer can exercise the option and Fidelity will sell your 100 shares at $215 — even if AAPL is trading at $230. You keep the $210 premium, but you miss the extra $15 per share of upside. That is $1,500 of gains you gave up.

Downside is not protected: The $210 premium softens a drop, but it does not eliminate it. If AAPL falls from $213 to $190, you lose $23 per share on the stock. The $2.10 premium only offsets $2.10 of that loss. Covered calls reduce your cost basis slightly — they do not hedge your portfolio.

Early assignment: American-style options (which most equity options are) can be exercised before expiration. This is rare but happens more often around ex-dividend dates. FINRA and the OIC both note that early assignment is a risk sellers must understand.

Liquidity risk: On thinly traded stocks, the bid-ask spread can be very wide. Stick to liquid names like AAPL, MSFT, NVDA, or SPY when you are starting out. Wide spreads eat into your premium income.

Opportunity cost: Selling a covered call locks up your shares. You cannot easily sell the stock without first buying back the call, which may cost more than you collected if the stock has risen.

Tax Treatment: What the IRS (and CRA) Say About Covered Call Premium

In the United States, the IRS treats covered call premium as short-term capital gain in most cases, reported in the year the option expires, is exercised, or is bought back. If your call expires worthless, the premium you collected is recognized as a short-term gain on the expiration date — regardless of how long you held the underlying stock.

There is an important wrinkle: selling a covered call can suspend the holding period on your underlying shares. Under IRS rules, if you sell an 'in-the-money' covered call, the holding period clock on your shares may pause. This matters if you are trying to qualify for long-term capital gains treatment on the stock itself. The IRS Publication 550 covers this in detail. When in doubt, talk to a tax professional before selling calls on shares you have held for less than a year.

For Canadian investors using a non-registered account, the Canada Revenue Agency (CRA) generally treats covered call premiums as income or capital gains depending on your trading frequency and intent. The CRA's Interpretation Bulletin IT-479R addresses options transactions. TFSA and RRSP accounts have specific rules — the CRA has stated that frequent options trading inside a TFSA can be considered business income and lose its tax-sheltered status. Again, consult a tax advisor for your specific situation.

If your call is exercised and your shares are sold, the premium you collected is added to the proceeds of the sale for calculating your gain or loss on the stock.

How to Close or Roll the Position Before Expiration

You do not have to hold a covered call until expiration. You can close it at any time by buying back the same contract — this is called 'Buy to Close.'

Using our AAPL example: suppose you sold the $215 call for $2.10 and two weeks later AAPL has barely moved. The call is now worth $0.40. You can buy it back for $0.40, locking in a profit of $1.70 per share ($170 total) and freeing up your shares to sell a new call for the next expiration cycle. Many experienced covered call traders target buying back calls when they have lost 50-80% of their value — capturing most of the premium while reducing assignment risk.

Rolling means closing the current call and immediately selling a new one at a later expiration or higher strike. On Fidelity, you can do this as a spread order (a 'roll') or as two separate trades. A single spread order is cleaner and reduces execution risk.

To place a Buy to Close order on Fidelity, follow the same steps as above but select 'Buy to Close' instead of 'Sell to Open' at step 4.

What options level do I need on Fidelity to sell covered calls?

You need Level 1 options approval, which is the entry-level tier at Fidelity. You apply through Account Features under Brokerage & Trading. Most investors with basic stock experience are approved quickly, sometimes the same day.

Can I sell covered calls in my Fidelity IRA?

Yes, Fidelity allows covered calls in traditional and Roth IRAs under Level 1 approval. Because IRAs cannot use margin, your shares must be fully paid — you cannot sell calls on shares purchased with borrowed money. Check Fidelity's IRA options agreement for any account-specific restrictions.

What happens if my covered call gets assigned on Fidelity?

Fidelity will automatically sell your 100 shares at the strike price on or after the assignment date. You keep the premium you collected plus any gain from the strike price versus your cost basis. Fidelity sends a trade confirmation and the cash settles in two business days.

How much money can I realistically make selling covered calls?

Premium income varies widely based on the stock's volatility, the strike you choose, and the time to expiration. On a stock like AAPL, a slightly out-of-the-money 30-day call might yield 1-2% of the stock's value per month in a normal volatility environment. Annualized, that is 12-24%, but that assumes consistent execution and does not account for assignment losses or stock price drops.

Is selling a covered call the same as a buy-write?

A buy-write means you buy the stock and sell the call in a single combined order. A covered call is when you sell the call against shares you already own. The end position is identical — you own 100 shares and are short one call contract. Fidelity supports both approaches through its options trade ticket.

Do I need to do anything at expiration if my covered call expires worthless?

No action is required. If the option expires out-of-the-money, it simply disappears from your account and you keep the full premium. Fidelity processes the expiration automatically overnight on the expiration date. Your shares remain in your account and you can sell a new call the next trading day.