How to Sell a Covered Call on Robinhood (And Which Options Level You Need)

The Short Answer: Level 1 Options and 100 Shares

To sell a covered call on Robinhood you need Level 1 options approval and at least 100 shares of the underlying stock already in your account. Once approved, the whole process takes under two minutes inside the app. This article walks you through every step, shows you a real numbers example using Apple (AAPL), and covers the risks you need to understand before you place your first trade.

What Options Level Approval Does Robinhood Require?

Robinhood uses a tiered options approval system. Covered calls fall under Level 1, which is the entry-level tier. That matters because Level 1 is the easiest to get — Robinhood grants it to most applicants who have basic investing experience and can confirm they understand options mechanics.

Level 2 unlocks long calls and puts. Level 3 adds spreads. You do not need Level 2 or Level 3 to sell covered calls. If you already trade stocks on Robinhood and want to add covered calls, you apply for options in the app under Account → Settings → Options Trading. Robinhood asks about your employment, income, net worth, trading experience, and investment objectives. Answer honestly — FINRA Rule 2360 requires brokers to collect this information before approving options trading.

Approval is usually instant or takes one business day. If Robinhood declines you, they will tell you why, and you can reapply after updating your profile if your situation changes.

Step-by-Step: Placing a Covered Call Trade in the Robinhood App

Before you start, confirm you own at least 100 shares of the stock you want to write calls against. One options contract always covers exactly 100 shares, as standardized by the Options Clearing Corporation (OCC).

**Step 1 — Open the stock's detail page.** Search for your ticker (for example, AAPL) and tap the stock.

**Step 2 — Tap 'Trade,' then 'Trade Options.'** This opens the options chain.

**Step 3 — Select 'Sell' and then 'Call.'** Robinhood will filter the chain to show only calls you can sell covered.

**Step 4 — Pick your expiration date.** Most covered-call sellers start with expirations 2–5 weeks out to capture time decay (theta) without locking up shares too long.

**Step 5 — Pick your strike price.** Tap the strike you want. The app shows the bid, ask, and mid-price premium per share. Remember to multiply by 100 to get your total dollar premium.

**Step 6 — Set your limit price.** Always use a limit order, not a market order. Set it at or near the mid-price between the bid and ask. Market orders on options can fill at poor prices.

**Step 7 — Review and confirm.** Robinhood shows a summary screen with your maximum profit, breakeven, and the fact that your 100 shares will be held as collateral. Tap 'Submit.'

Your shares are now 'covered.' Robinhood locks them so you cannot sell the stock while the call is open without first closing the option.

A Real Numbers Example: AAPL Covered Call

Let's say you own 100 shares of Apple (AAPL) purchased at $185 per share. AAPL is currently trading at $213. You want to generate income without selling your shares right now.

You look at the options chain and find a call expiring in 28 days with a $220 strike price. The bid is $2.10 and the ask is $2.30. You set a limit order at $2.20 (the mid-price).

If your order fills at $2.20, you collect $220 in cash immediately (2.20 × 100 shares). That $220 is yours to keep no matter what happens next.

**Scenario A — AAPL stays below $220 at expiration.** The call expires worthless. You keep your 100 shares and the full $220 premium. Your effective cost basis on the shares drops by $2.20 per share.

**Scenario B — AAPL rises above $220 at expiration.** Your shares get called away (assigned) at $220. You sell 100 shares at $220, keep the $220 premium, and your total proceeds are $22,220. You no longer own the shares. You miss any gains above $220.

**Scenario C — AAPL drops sharply.** You still keep the $220 premium, but your shares are now worth less. The premium cushions the loss slightly but does not protect you from a large downside move. This is the core risk of covered calls — they are not a hedge.

Your breakeven on the downside is your original purchase price minus the premium collected. In this case: $185 − $2.20 = $182.80 per share.

Risks You Need to Know Before You Sell

Covered calls are considered one of the more conservative options strategies, and the SEC classifies them as a defined-risk strategy because your maximum loss is tied to owning the stock, not to the option itself. But 'conservative' does not mean 'risk-free.' Here are the three risks that catch new covered-call sellers off guard.

**Capped upside.** If your stock rockets past your strike, you are obligated to sell at the strike. You collect the premium but miss the extra gain. In the AAPL example above, if the stock jumps to $240, you still sell at $220. You leave $20 per share — $2,000 — on the table.

**Assignment before expiration.** American-style options (which is what most US stock options are) can be exercised early. If your call goes deep in-the-money, the buyer might exercise early, and Robinhood will sell your shares. The OIC notes that early assignment is most common just before a dividend ex-date, so check the dividend calendar before selling calls on dividend-paying stocks.

**Stock price decline.** The premium you collect is small compared to what a large stock drop can cost you. A $2.20 premium does not offset a $30 drop in AAPL. Covered calls reduce your cost basis incrementally — they are an income tool, not a loss-prevention tool.

FINRA encourages all options traders to read the OIC's disclosure document, 'Characteristics and Risks of Standardized Options,' before trading. Robinhood is required to provide this document to you during the approval process.

Tax Treatment: What Happens to the Premium You Collect?

In the United States, the IRS treats covered-call premiums as short-term capital gains in most situations, regardless of how long you have held the underlying stock. The premium is not taxed when you receive it — it is taxed when the position closes (expires, gets assigned, or you buy the call back).

There is an important wrinkle: if you sell a call that is 'in the money' or too close to the current stock price, the IRS may suspend the holding period on your shares under the 'qualified covered call' rules in IRC Section 1092. This can turn a long-term capital gain on your stock into a short-term gain if you get assigned. The IRS Publication 550 covers this in detail. If you have held your shares for close to one year, talk to a tax professional before selling calls near or below the current stock price.

Canadian investors using a Canadian broker face different rules. The CRA generally treats covered-call premiums as capital gains or income depending on your trading frequency and intent. The CRA's Interpretation Bulletin IT-479R addresses securities transactions. Canadian investors should confirm their treatment with a tax advisor before writing calls inside a non-registered account.

Quick Tips to Get Better Fills on Robinhood

Robinhood's options interface is simple, which is good for beginners, but it has some quirks worth knowing.

Always use limit orders. Robinhood defaults to limit orders for options, but double-check before submitting. Market orders on thinly traded strikes can fill far below the mid-price.

Trade liquid names. AAPL, MSFT, NVDA, and SPY have tight bid-ask spreads, which means you give up less money between the bid and the mid. Thinly traded stocks have wide spreads that eat into your premium.

Check open interest and volume. On the options chain, look for strikes with open interest above 500 and daily volume above 100. Low open interest means fewer buyers, which makes it harder to get a good fill or close the position early.

Consider closing early. If your call loses 50–80% of its value before expiration (meaning the stock has not moved much), you can buy it back cheaply and free up your shares. Many experienced covered-call writers close at 50% profit rather than holding to expiration, reducing the risk of a late-expiration surprise move.

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

You need Level 1 options approval on Robinhood to sell covered calls. This is the lowest options tier and is available to most applicants with basic investing experience. You apply through Account → Settings → Options Trading inside the Robinhood app.

Can I sell a covered call on Robinhood with only 100 shares?

Yes — 100 shares is exactly the minimum required because one standard options contract covers 100 shares, as set by the Options Clearing Corporation. You cannot sell a covered call on fewer than 100 shares. If you own 200 shares, you could sell up to two contracts.

What happens to my shares when I sell a covered call on Robinhood?

Robinhood locks your 100 shares as collateral for the duration of the trade. You cannot sell those shares while the call is open unless you first buy the call back to close the position. If the call is exercised (assigned), Robinhood automatically sells your shares at the strike price.

How do I pick the right strike price for a covered call on Robinhood?

Most covered-call sellers choose a strike price 3–10% above the current stock price (out-of-the-money) to collect premium while leaving room for the stock to rise before getting called away. A strike with a delta around 0.20–0.30 is a common starting point — it means roughly a 20–30% chance of expiring in-the-money. Higher strikes pay less premium but reduce assignment risk.

Is selling covered calls on Robinhood taxed differently than regular stock gains?

The IRS generally treats covered-call premiums as short-term capital gains, taxed at ordinary income rates. If you sell a call that is too deep in-the-money, the IRS may also suspend the long-term holding period on your shares under IRC Section 1092, which could affect how your stock gains are taxed. Review IRS Publication 550 or consult a tax professional if you are close to the one-year holding mark on your shares.

Can I get assigned early when selling covered calls on Robinhood?

Yes. US stock options are American-style, meaning the buyer can exercise at any time before expiration, not just on the expiration date. Early assignment is most likely when your call is deep in-the-money or just before the stock's ex-dividend date, as the OIC explains in its options education materials. If you are assigned early, Robinhood will sell your shares at the strike price and credit your account.