How to Sell a Covered Call on Robinhood (Step-by-Step) and What Options Approval Level You Need

The Short Answer: Level 1 Approval, Five Taps

To sell a covered call on Robinhood you need Options Level 1 approval — the lowest tier — because you already own the underlying shares. Once approved, the whole process takes about five taps inside the app: find the stock, open the options chain, pick a strike and expiration, select Sell, and confirm. That's it.

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 Approval Level Does Robinhood Require for Covered Calls?

Robinhood uses a tiered approval system. Covered calls fall under Level 1 (sometimes labeled 'Level 1 — Covered Calls' in the app). This is the entry-level options tier and it is specifically designed for selling calls against stock you already hold.

To get Level 1 approval, Robinhood asks you a short questionnaire about your investing experience, annual income, net worth, and investment objective. FINRA Rule 2360 requires brokers to perform this suitability check before granting options trading access, so every broker — not just Robinhood — has to do this. Answer honestly. If Robinhood denies your first application, you can reapply after 30 days or contact support to explain your experience.

Level 2 and Level 3 unlock buying options and more complex strategies, but you do not need those tiers to write covered calls. Stick with Level 1 until you have a solid handle on the basics.

Before You Place the Trade: The One Rule That Cannot Break

A covered call is only 'covered' if you own at least 100 shares of the underlying stock for every one contract you sell. One standard equity options contract controls 100 shares, as defined by the Options Clearing Corporation (OCC). If you sell one AAPL call contract, you must hold 100 shares of AAPL in that same Robinhood account.

If you sell a call without owning the shares, that is a naked call — a completely different, high-risk strategy that requires Level 3 approval and is not what this article covers. Robinhood will block the trade at the order screen if your share count is insufficient, but it is worth understanding the rule before you get there.

Also confirm your shares are not already tied up in another position — for example, as collateral for a margin loan. Pledged shares cannot serve as cover.

Step-by-Step: How to Sell a Covered Call on Robinhood

Here is the exact sequence inside the Robinhood mobile app as of 2024. The web platform follows the same logic.

**Step 1 — Navigate to the stock.** Search for your ticker (we will use AAPL) and open the detail page.

**Step 2 — Open the options chain.** Tap 'Trade,' then 'Trade Options.' You will see a calendar of expiration dates. Weekly expirations appear every Friday; monthly expirations fall on the third Friday of each month.

**Step 3 — Choose an expiration date.** Most covered-call writers start with 30–45 days to expiration (DTE). This range tends to offer a reasonable premium while giving you time to react if the stock moves sharply. Shorter expirations (7–14 DTE) decay faster but require more active management.

**Step 4 — Pick a strike price.** Tap the expiration date to expand the chain. You will see calls listed above the current stock price (out-of-the-money, or OTM) and below it (in-the-money, or ITM). Most income-focused traders sell OTM calls — strikes above the current price — to collect premium while keeping room for the stock to appreciate.

**Step 5 — Select Sell.** Tap the strike you want, then tap 'Sell.' Robinhood defaults to a limit order. You will see the bid/ask spread. Set your limit price at or near the mid-point of the bid and ask for a fair fill.

**Step 6 — Set quantity and confirm.** Enter the number of contracts (each = 100 shares). Review the order summary — it shows your maximum premium collected and the obligation you are taking on — then swipe to submit.

Robinhood credits the premium to your account as soon as the order fills. That cash is yours to keep regardless of what happens next.

Worked Example: Selling a Covered Call on AAPL

Let's make this concrete. Suppose it is a Monday morning and AAPL is trading at $213.50 per share. You own 100 shares. You want to generate income over the next 30 days without selling your position.

**You look at the options chain for the expiration 32 days out.**

- The $220 strike call (roughly 3% OTM) shows a bid of $2.10 and an ask of $2.30. Mid-point: $2.20. - You place a limit order to sell 1 contract at $2.20. - The order fills. Robinhood credits your account $220.00 (that is $2.20 × 100 shares).

**Three possible outcomes at expiration:**

1. **AAPL closes below $220.** The call expires worthless. You keep the full $220 premium and still own your 100 shares. Annualized yield on this trade alone: roughly 12% ($220 ÷ $21,350 cost basis × 12 months).

2. **AAPL closes above $220.** Your shares get called away at $220. You receive $22,000 for the shares plus the $220 premium — a total of $22,220. If you paid $213.50 per share, your gain is $870 on the position ($650 capital gain + $220 premium). You no longer own the shares after assignment.

3. **AAPL spikes to $235 before expiration.** Your shares are still at risk of early assignment (more on this below), and you miss the upside above $220. This is the real cost of the strategy.

The numbers above are illustrative and based on typical implied volatility for AAPL. Actual premiums change daily with market conditions.

Risks You Need to Understand Before You Sell

Covered calls are considered a conservative options strategy, but they carry real risks. The Options Industry Council (OIC) classifies them as a 'neutral to moderately bullish' strategy — meaning they work best when the stock drifts sideways or rises slowly.

**Capped upside.** Once you sell the call, your profit on the stock is capped at the strike price. If AAPL rockets from $213.50 to $250, you still sell at $220. You collected $220 in premium but gave up $3,000 in potential gains. This is the single biggest complaint from new covered-call writers.

**Assignment risk.** The buyer of your call can exercise it any time before expiration (American-style options). Early assignment is rare but most common just before an ex-dividend date, when the call is deep in the money. If you get assigned early, your shares are sold at the strike price immediately. Robinhood will notify you, but it can happen overnight.

**The stock can still fall.** The premium you collect provides a small cushion — in our example, $2.20 per share — but if AAPL drops from $213.50 to $190, you lose $23.50 per share minus the $2.20 premium, for a net loss of $21.30 per share. Covered calls do not protect you from a large decline.

**Tax treatment.** The IRS treats covered-call premiums as short-term capital gains in most cases, regardless of how long you have held the underlying stock. Selling a call can also affect the holding period of your shares under IRS qualified covered call rules (see IRS Publication 550). Canadian investors should consult CRA guidance, as premiums may be treated as capital gains or income depending on your trading frequency. Neither the OIC nor FINRA provides tax advice — speak with a qualified tax professional.

Tips for Getting Better Fills on Robinhood

Robinhood's options interface is simple, which is a feature and a limitation. Here are a few practical habits that help you get fair prices.

**Use limit orders, not market orders.** Options spreads can be wide, especially on less liquid names. Always set a limit at the mid-point of the bid/ask and adjust by a penny or two if you need a faster fill. Never use a market order on options.

**Trade liquid underlyings.** AAPL, MSFT, NVDA, and SPY have tight spreads and deep open interest. Thinly traded stocks have wide spreads that eat into your premium. The CBOE publishes daily volume and open interest data you can use to check liquidity before trading.

**Avoid selling calls right before earnings.** Implied volatility (IV) spikes before earnings, which inflates premiums — but the stock can move violently in either direction after the report. Many experienced traders close or avoid covered calls in the week before an earnings announcement.

**Check the Greeks.** Robinhood displays delta, theta, and implied volatility on each contract. A delta of 0.20–0.30 on your short call means there is roughly a 20–30% chance of the call finishing in the money — a common starting point for OTM covered-call writers who want to balance premium income against the risk of assignment.

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

You need Level 1 options approval, which is the lowest tier Robinhood offers. It is specifically designed for covered calls and other defined-risk strategies. You apply through the app by answering a short suitability questionnaire, as required by FINRA Rule 2360.

How many shares do I need to sell one covered call contract on Robinhood?

You need exactly 100 shares of the underlying stock for each contract you sell. One standard equity options contract controls 100 shares, per Options Clearing Corporation rules. Robinhood will not let you submit the order if your share count falls short.

When does Robinhood credit the premium from a covered call?

Robinhood credits the premium to your account as soon as your sell order fills — typically within seconds during market hours. That cash is yours to keep no matter what happens to the stock or the option afterward. It does not depend on the option expiring worthless.

Can I get assigned early on a covered call on Robinhood?

Yes. U.S. equity options are American-style, meaning the buyer can exercise at any time before expiration. Early assignment is uncommon but most likely when the call is deep in the money or just before an ex-dividend date. If you are assigned, Robinhood sells your 100 shares at the strike price and notifies you, often overnight.

Do I owe taxes on covered call premiums collected on Robinhood?

Yes. The IRS generally treats covered-call premiums as short-term capital gains, and selling a call can affect the holding period of your underlying shares under the qualified covered call rules in IRS Publication 550. Canadian investors should review CRA guidance, as treatment can vary. Consult a qualified tax professional for your specific situation.

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

If the stock closes above your strike price at expiration, Robinhood will automatically sell your 100 shares at the strike price — this is called assignment. You keep the premium you collected plus any capital gain from the strike price minus your cost basis. You will no longer own the shares after settlement.