How to Place a Covered Call Order on Charles Schwab and thinkorswim (Step-by-Step)

The Short Answer: Here Is Exactly How to Do It

To place a covered call on Charles Schwab or its thinkorswim platform, you own at least 100 shares of a stock, open the option chain for that stock, and sell one call contract per 100 shares using a 'Sell to Open' limit order. The whole process takes under two minutes once your account is approved for options trading.

Schwab merged with TD Ameritrade in 2020 and now offers two main trading interfaces: the standard Schwab.com web platform and the more advanced thinkorswim desktop and mobile app. Both let you sell covered calls. This guide walks through both, with a real numbers example using Apple (AAPL).

What You Need Before You Place the First Trade

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

1. Options approval at Level 1 (covered calls). Schwab requires you to apply for options trading. Log in, go to Account > Upgrade Features > Options Trading, and complete the application. Covered calls are the most basic level — Level 1 — because you already own the underlying shares. FINRA Rule 2360 requires brokers to collect information about your experience, income, and investment objectives before granting options access. Schwab will ask those questions in the application.

2. At least 100 shares of the underlying stock. One standard equity option contract covers exactly 100 shares. If you own 250 shares of AAPL, you can sell a maximum of two contracts (covering 200 shares) and keep 50 shares uncovered.

3. A margin or cash account with enough equity. Covered calls can be held in a cash account, an IRA, or a margin account. The Options Industry Council (OIC) notes that covered calls are one of the few option strategies permitted inside retirement accounts at most brokers, including Schwab.

Worked Example: Selling a Covered Call on AAPL

Let's say you own 100 shares of Apple (AAPL) currently trading at $213.50. You want to generate income by selling a covered call.

You decide to sell one contract of the AAPL $220 call expiring in 30 days. The bid/ask on that contract is $2.10 / $2.25. You place a limit order to sell at $2.15 — splitting the spread slightly in your favor.

If your order fills at $2.15, you collect $215 in premium (2.15 × 100 shares) immediately credited to your account. In exchange, you agree to sell your 100 AAPL shares at $220 any time before expiration if the buyer exercises the option.

Your three possible outcomes at expiration: - AAPL stays below $220: The call expires worthless. You keep the $215 premium and still own your shares. You can sell another call next month. - AAPL closes above $220: Your shares are called away at $220. You keep the $215 premium plus the gain from $213.50 to $220 ($650). Total gain on the position: $865 on 100 shares. - AAPL drops sharply: The premium ($215) cushions your loss but does not eliminate it. If AAPL falls to $195, you lose $1,850 on the shares minus the $215 premium, for a net loss of $1,635.

That third scenario is why covered calls reduce — but do not remove — downside risk.

Step-by-Step on the Schwab Web Platform

Step 1 — Log in at schwab.com and go to the Trade tab.

Step 2 — In the symbol box, type your ticker (e.g., AAPL) and select 'Options' from the trade type dropdown.

Step 3 — The option chain loads. Choose your expiration date from the tabs across the top. For beginners, a 21-to-45-day expiration is a common starting range because time decay (theta) is meaningful without the position moving too fast.

Step 4 — Find your target strike in the Calls column. The strike price column runs down the center. Calls are on the left, puts on the right.

Step 5 — Click the Bid price on the row for your chosen strike. This pre-populates a Sell to Open order ticket.

Step 6 — On the order ticket, confirm: Action = Sell to Open, Quantity = 1 (for 100 shares), Order Type = Limit, and enter your limit price. Never use a market order for options — the bid/ask spread can be wide, and a market order may fill at a price far worse than expected. The SEC's Office of Investor Education and Advocacy echoes this caution for retail options traders.

Step 7 — Review the order summary. Schwab shows your estimated premium and the maximum gain. Click Preview Order, then Place Order.

Step-by-Step on thinkorswim Desktop

thinkorswim is Schwab's professional-grade platform, downloaded as a desktop app or accessed via thinkorswim Web.

Step 1 — Open thinkorswim and click the Trade tab at the top.

Step 2 — Type your ticker in the symbol box at the top left and press Enter.

Step 3 — Click the Option Chain button below the stock chart. The chain expands showing all expirations.

Step 4 — Click the expiration row to expand it. You will see strikes with Bid, Ask, Delta, and other Greeks displayed in columns.

Step 5 — Right-click the Bid price in the Calls section at your target strike. A context menu appears. Select 'Sell' then 'Single'.

Step 6 — An order ticket opens at the bottom of the screen in the Order Entry panel. Confirm the order reads: SELL +1 COVERED AAPL [date] [strike] CALL. The word COVERED confirms thinkorswim has recognized you own the underlying shares and is not treating this as a naked call.

Step 7 — Set your limit price. A good starting point is the midpoint between the bid and ask. For a $2.10 bid / $2.25 ask, try $2.17 or $2.18.

Step 8 — Click Confirm and Send. Review the order confirmation dialog, which shows your maximum profit, maximum loss, and breakeven. Click Send.

Tip: thinkorswim also has a mobile app (iOS and Android). The flow is nearly identical — tap Trade, pull up the option chain, tap the bid on your strike, and confirm a Sell to Open limit order.

Risks You Need to Understand Before You Trade

Covered calls are considered conservative relative to other option strategies, but they carry real risks. Do not let the word 'covered' create a false sense of safety.

Capped upside. Once you sell the call, your maximum gain on the shares is locked at the strike price. In the AAPL example above, if AAPL rockets to $240, you still sell at $220. You miss $20 per share — $2,000 — in additional profit.

Full downside on the shares. The premium you collect is a small buffer. A 20% drop in a $213 stock costs you roughly $4,260 on 100 shares. The $215 premium covers about 5% of that loss.

Early assignment. American-style equity options (which all standard US stock options are) can be exercised by the buyer at any time before expiration. Early assignment is uncommon but happens most often just before an ex-dividend date. If your shares are called away early, you lose the upcoming dividend. The OIC publishes detailed guidance on early assignment risk in its options education materials.

Tax treatment. In the US, 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 an in-the-money covered call can also suspend the holding period on your shares, which matters if you are trying to qualify for long-term capital gains rates. Consult IRS Publication 550 for the full rules. Canadian investors should review CRA's Interpretation Bulletin IT-479R, which addresses options transactions and their tax treatment under Canadian law.

Liquidity risk. Stick to liquid underlyings with tight bid/ask spreads. Wide spreads on thinly traded options eat into your premium before you even start.

How to Choose Your Strike Price and Expiration

Strike selection is the most important decision in a covered call trade. Two numbers guide most retail traders: delta and distance from the current price.

Delta as a probability proxy. A call option's delta is roughly equal to the probability that the option expires in the money. A $220 AAPL call with a delta of 0.25 has approximately a 25% chance of being in the money at expiration. Selling a 0.25-delta call means you keep your shares about 75% of the time. The CBOE's educational resources explain delta in detail for retail traders.

Out-of-the-money (OTM) calls are the most common choice for covered call sellers who want to keep their shares. A strike 3% to 7% above the current price is a typical starting range for a 30-day expiration.

Expiration timing. Most covered call sellers target 21 to 45 days to expiration (DTE). Time decay (theta) accelerates in the final 30 days, which benefits the seller. Rolling the position — buying back the short call and selling a new one further out — is a standard management technique when the stock approaches your strike before expiration.

Do I need special approval to sell covered calls on Schwab?

Yes. Schwab requires you to apply for options trading and be approved for at least Level 1 options, which covers selling covered calls. The application asks about your trading experience, income, and investment goals, as required by FINRA Rule 2360. Most investors with basic experience are approved within one business day.

Can I sell covered calls in my Schwab IRA?

Yes. Schwab allows covered calls in Traditional and Roth IRAs at the Level 1 options tier. The OIC notes that covered calls are one of the few option strategies most brokers permit in retirement accounts because the risk is limited to the shares you already own. You still need to apply for options approval within the IRA separately from a taxable account.

What does 'Sell to Open' mean on the Schwab order ticket?

'Sell to Open' means you are creating a new short option position — you are the seller, not the buyer, of the call contract. This is the correct action for a covered call. 'Buy to Open' would mean you are purchasing an option, which is the opposite trade.

Why should I use a limit order instead of a market order for options?

Options bid/ask spreads can be wide, sometimes $0.10 to $0.50 or more on a single contract. A market order fills at whatever price the market gives you, which could be the bid — the worst price for a seller. The SEC advises retail investors to use limit orders for options to control their execution price and avoid unfavorable fills.

What happens if my covered call gets assigned on Schwab?

If the buyer exercises the call, Schwab automatically sells your 100 shares 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 US equity options, though it most commonly occurs at or near expiration or just before an ex-dividend date.

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

To close the position, you buy back the same contract you sold — this is called 'Buy to Close.' In thinkorswim, go to the Monitor tab, find the position, right-click it, and select 'Buy to Close.' Many traders buy back the call when it has lost 50% to 80% of its value, locking in most of the premium and freeing up the shares to sell a new call.