How to Sell a Covered Call on Fidelity Step by Step for Beginners

The Short Answer: Yes, You Can Do This on Fidelity in Under 10 Minutes

Selling a covered call on Fidelity means you sell someone the right to buy 100 shares of stock you already own, at a price you choose, by a date you choose — and you collect cash upfront for doing it. Fidelity supports covered calls under its Level 1 options approval tier, which is the easiest tier to get. Once your account is approved, the whole process takes about five clicks inside Fidelity's trade ticket.

This guide walks you through every step, shows you a real trade example using Apple (AAPL), and explains the risks you need to understand before you place your first order.

What You Need Before You Start

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

1. You own at least 100 shares of the stock. One covered call contract covers exactly 100 shares. If you own 250 shares, you can sell up to two contracts.

2. Your Fidelity account is approved for options trading at Level 1 or higher. Covered calls are a Level 1 strategy at Fidelity, the lowest and most accessible tier. To apply, log in, go to Accounts & Trade > Account Features > Brokerage & Trading > Options, and submit the short application. Fidelity will ask about your income, net worth, trading experience, and investment objective. Most accounts are approved within one business day.

3. Your account type supports options. Standard brokerage accounts and most IRAs at Fidelity allow covered calls. The SEC and FINRA both permit covered calls inside IRAs because the position is fully secured by the shares you hold — there is no naked exposure.

If you are a Canadian investor using a Fidelity Canada-equivalent account, the CRA treats covered call premiums as either capital gains or income depending on your trading frequency and intent — worth confirming with a tax professional before you start.

Step-by-Step: How to Place the Trade on Fidelity

Here is the exact sequence inside Fidelity's web platform. The mobile app follows the same logic.

**Step 1 — Open the trade ticket.** Go to Accounts & Trade > Trade. In the symbol box, type your stock ticker (for example, AAPL) and select it.

**Step 2 — Switch to Options.** Below the symbol box, click the Options tab. The ticket will expand to show options-specific fields.

**Step 3 — Set the action to Sell to Open.** In the Action dropdown, choose Sell to Open. This tells Fidelity you are opening a new short call position, not closing an existing one.

**Step 4 — Choose your expiration date.** Click the Expiration dropdown. You will see a list of available dates. Weekly expirations run every Friday. Monthly expirations fall on the third Friday of each month. Beginners often start with 30-45 day expirations because they balance time decay (theta) against flexibility.

**Step 5 — Choose your strike price.** The strike is the price at which your shares would be called away if the buyer exercises. Most covered-call sellers pick a strike that is out of the money — meaning above the current stock price — so they keep their upside for a while and still collect premium. The option chain on Fidelity shows each strike with its bid price, ask price, and delta. A delta around 0.20 to 0.30 is a common starting range for conservative sellers, as noted by the Options Industry Council (OIC) in its covered-call educational materials.

**Step 6 — Set order type and price.** Choose Limit order and set your limit price at or near the bid price shown on the chain. Never use a market order for options — the bid-ask spread can be wide and you may get a poor fill. Review the order summary, confirm the number of contracts, and click Preview Order, then Place Order.

Fidelity will hold your 100 shares per contract as collateral automatically. You do not need to do anything extra to "cover" the position — the system links your shares to the short call.

A Real Worked Example: Selling a Covered Call on AAPL

Let's say you own 100 shares of Apple (AAPL), currently trading at $213.50 per share.

You decide to sell one covered call with a $220 strike price expiring in 35 days. Looking at the option chain, the $220 call shows a bid of $2.10 and an ask of $2.20. You place a limit order at $2.15 — splitting the spread.

Your order fills. You collect $215.00 in premium (100 shares × $2.15), minus Fidelity's per-contract commission (currently $0.65 per contract for most retail accounts, so $0.65 total here).

Now three outcomes are possible at expiration:

**Outcome A — AAPL stays below $220.** The call expires worthless. You keep the full $215 premium and still own your 100 shares. Your effective cost basis on the shares dropped by $2.15 per share.

**Outcome B — AAPL rises above $220.** The buyer exercises the call. Fidelity sells your 100 shares at $220. You keep the $215 premium plus the gain from $213.50 to $220 ($650). Total proceeds: $22,000 + $215 − $0.65 = $22,214.35. You no longer own the shares.

**Outcome C — You want to exit early.** You can buy back the call (Buy to Close) before expiration. If the stock dropped and the call is now worth $0.80, you buy it back for $80 and lock in a $135 profit without waiting for expiration.

This example shows why covered calls are popular: you get paid while you wait, and you already own the stock anyway.

What Are the Real Risks Here?

Covered calls are one of the lower-risk options strategies, but risks are real and you should understand them before placing a trade.

**Capped upside.** If AAPL jumps from $213.50 to $240 before expiration, you still sell at $220. You miss $20 per share of gain above the strike. The premium you collected does not come close to covering that missed profit. This is the biggest practical downside for long-term stock holders.

**You still own the downside.** If AAPL falls to $180, you lose $33.50 per share on the stock. The $2.15 premium offsets only a small part of that loss. A covered call does not protect you from a large drop — it only reduces your cost basis slightly. FINRA's investor education materials make this point clearly: covered calls reduce but do not eliminate stock risk.

**Early assignment.** American-style options (which is what most US stock options are) can be exercised by the buyer at any time before expiration, not just on expiration day. Early assignment is rare but more likely just before an ex-dividend date. If your shares get called away early, you may miss the dividend and trigger a taxable event sooner than planned.

**Tax treatment.** The IRS treats covered call premiums differently depending on whether the call is qualified or unqualified under the rules in IRS Publication 550. Selling a deep in-the-money call or a call with a very short expiration can suspend the holding period on your shares, potentially converting a long-term capital gain into a short-term one. Read IRS Publication 550 or speak with a tax advisor before selling calls on shares you have held for less than a year or shares sitting on a large long-term gain.

How to Track and Manage the Position After You Sell

Once the trade is placed, Fidelity shows your open covered call under Accounts & Trade > Positions. You will see the short call listed with a negative quantity (e.g., -1 AAPL 220 Call).

Most experienced covered-call sellers set a mental or hard rule to buy back the call if it drops to 20-25% of the original premium collected. In the AAPL example above, that means buying back at around $0.43-$0.54. This locks in most of the profit early and frees you to sell a new call for the next cycle — a practice sometimes called "rolling down and out."

You can also roll the call before expiration: buy back the current call and simultaneously sell a new call at a higher strike or later expiration. Fidelity supports this as a single multi-leg order under the Options tab, which saves on commissions and reduces execution risk compared to doing two separate trades.

Set a price alert on the stock so you are not caught off guard if it moves sharply toward or through your strike. Fidelity's mobile app lets you set alerts in under a minute.

Common Beginner Mistakes to Avoid on Fidelity

**Using a market order.** Always use a limit order for options. Market orders on options can fill at the ask price or worse, especially in less liquid names.

**Selling calls on stocks you would not mind losing.** Before you sell, ask yourself: if this stock gets called away at the strike, am I okay with that? If the answer is no — because you have a large embedded gain, sentimental attachment, or a specific long-term plan for the shares — reconsider the trade or choose a higher strike.

**Ignoring earnings dates.** Implied volatility spikes around earnings, which makes premiums look attractive. But the stock can move 10-15% in either direction overnight. Selling a covered call into earnings means you cap your upside if the stock surges, and you still take the full loss if it drops. Check the earnings calendar on Fidelity before choosing your expiration date.

**Selling too many contracts.** If you own 500 shares, you can sell up to five contracts. Selling all five means your entire position is capped. Many traders sell calls on only 25-50% of their shares so they keep some uncapped upside.

**Forgetting about dividends.** If the stock pays a dividend and your call is in the money near the ex-dividend date, early assignment risk rises sharply. The OIC explains this dynamic in detail in its free options education resources at theocc.com.

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

Fidelity requires Level 1 options approval to sell covered calls, which is the lowest tier available. You apply through Account Features under Brokerage & Trading, and most approvals come within one business day. Level 1 covers only covered calls and cash-secured puts — strategies where your risk is fully backed by shares or cash you already hold.

Can I sell covered calls in a Fidelity IRA?

Yes. Fidelity allows covered calls inside traditional and Roth IRAs because the position is fully secured by shares you already own. The SEC and FINRA both permit this strategy in retirement accounts for the same reason. Keep in mind that if your shares get called away, the proceeds stay inside the IRA and you cannot replace the shares with an outside contribution beyond your annual limit.

How much money can I make selling covered calls on Fidelity?

The premium you collect depends on the stock's implied volatility, how far out of the money the strike is, and how much time is left until expiration. On a $213.50 AAPL position, a 35-day out-of-the-money call might pay around $2.00-$2.50 per share, or roughly 1% of the stock's value per month. Annualized, consistent covered-call selling on a stable stock might add 8-15% in premium income, though results vary widely with market conditions.

What happens if my covered call gets assigned on Fidelity?

Fidelity automatically sells your 100 shares per contract at the strike price and credits the proceeds to your account. You keep the premium you collected when you sold the call. Assignment can happen any time before expiration for American-style options, though it most commonly happens at expiration or just before an ex-dividend date.

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 as ordinary income — but the rules get complicated if the call is deep in the money or affects the holding period of your shares. IRS Publication 550 covers the qualified versus unqualified covered call rules in detail. Canadian investors should check CRA guidance, as premiums may be treated as income or capital gains depending on trading frequency and intent.

How do I close a covered call early on Fidelity before expiration?

Go to Accounts & Trade > Positions, find your short call, and click the position to open a trade ticket pre-filled with a Buy to Close order. Set a limit price near the current ask and submit the order. Once the buy-to-close order fills, your obligation is cancelled and your shares are free — you can sell a new call immediately if you want to start a new cycle.