How to Place a Covered Call Order on Charles Schwab thinkorswim: Step-by-Step Guide

The Short Answer: Here Is How You Do It

To place a covered call on Charles Schwab's thinkorswim platform, open the Trade tab, search your stock, go to the Options Chain, right-click the call strike you want, and select Sell > Single. Confirm the order reads 'Sell to Open' and submit. The whole process takes under two minutes once you know where to look.

This guide walks you through every click, explains what each field means, and shows you a real example using Apple (AAPL) so you can follow along with actual numbers.

What You Need Before You Place the First Trade

Three things must be in place before thinkorswim will let you sell a covered call.

First, you need at least 100 shares of the stock in your Schwab account. One standard options contract covers exactly 100 shares. If you own 250 shares, you can sell up to two contracts and still be fully covered.

Second, your account needs options trading approval at Level 1 (covered calls) or higher. Schwab follows FINRA Rule 2360 requirements, which means they must collect information about your income, net worth, trading experience, and investment objectives before granting options access. If you have not applied yet, go to Account > Upgrades > Apply for Options in the Schwab web portal. Approval usually takes one to two business days.

Third, you need to be using thinkorswim desktop or the thinkorswim web version. The standard Schwab.com interface can also place covered calls, but thinkorswim gives you the clearest options chain and the most control over order type and price.

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 one call contract expiring in 30 days at the $220 strike — roughly 3% out of the money.

Here is what the math looks like before you even open the platform:

- Current AAPL price: $213.50 - Strike chosen: $220 call - Days to expiration: 30 - Bid/ask on the $220 call: $2.10 / $2.20 - Mid-price (your target): $2.15 - Premium collected per contract (100 shares × $2.15): $215

If AAPL stays below $220 at expiration, the option expires worthless and you keep the $215. If AAPL closes above $220, your shares get called away at $220 — you still keep the $215 premium, and you sell the stock at $220 instead of the market price. Your maximum gain on the stock leg is capped at $220 no matter how high AAPL runs. That trade-off is the core risk of covered calls, and it is covered in more detail below.

Step-by-Step: Placing the Order in thinkorswim

Follow these steps exactly. The platform layout described matches thinkorswim desktop version as of mid-2024.

**Step 1 — Open thinkorswim and go to the Trade tab.** At the top of the screen you will see tabs: Scan, Charts, Trade, Analyze, and more. Click Trade.

**Step 2 — Enter your ticker symbol.** In the symbol box near the top left, type AAPL and press Enter. The stock quote and options chain will load below.

**Step 3 — Expand the Options Chain.** Scroll down past the stock quote to the Options Chain section. You will see a row of expiration dates. Click the expiration you want — for our example, choose the monthly expiration roughly 30 days out. The chain expands to show calls on the left and puts on the right, with strike prices in the middle column.

**Step 4 — Find your strike price.** Locate the $220 strike row. Look at the Bid and Ask columns on the calls side (left side of the chain). You should see something like 2.10 x 2.20. The bid is what a buyer will pay you right now. The ask is what sellers are asking. You will try to get filled near the mid-price of $2.15.

**Step 5 — Right-click the bid price and select Sell > Single.** Right-clicking on the bid cell opens a context menu. Choose Sell, then Single (not a spread). This populates the order entry bar at the bottom of the screen.

**Step 6 — Verify the order ticket.** The order bar at the bottom should show: - Action: Sell to Open - Symbol: AAPL - Quantity: 1 (one contract = 100 shares) - Expiration: your chosen date - Strike: 220 - Type: Call - Order type: Limit - Limit price: 2.15 (adjust to your target mid-price)

If it says 'Sell to Close' instead of 'Sell to Open,' stop. That means the platform thinks you already hold a long call position. Double-check and correct it before proceeding.

**Step 7 — Set your order type to Limit.** Always use a Limit order, not a Market order, for options. Market orders on options can fill at prices far from the mid, especially in less liquid names. Set your limit at the mid-price or one cent below the mid to improve fill odds.

**Step 8 — Review and send.** Click Confirm and Send. A summary screen shows the full order details including the estimated premium credit. Read it carefully. If everything matches your plan, click Send.

**Step 9 — Confirm the fill.** Go to the Monitor tab > Activity and Positions. You should see the short call position listed under your AAPL shares. The premium credit will appear in your account as a cash deposit, usually within minutes of the fill.

What Are the Real Risks You Are Taking On?

Covered calls are considered one of the lower-risk options strategies — the Options Industry Council (OIC) classifies them as a conservative income strategy — but lower risk does not mean no risk. Here are the three risks that matter most.

**Capped upside.** This is the biggest one. In our AAPL example, if Apple jumps to $240 before expiration, you do not participate above $220. You collected $215 in premium, but you missed $2,000 in stock gains ($20 per share × 100 shares). Many traders underestimate how painful this feels during a strong rally.

**You still own the stock downside.** If AAPL drops from $213.50 to $190, you lose $23.50 per share on the stock. The $2.15 premium offsets only a small portion of that loss. Covered calls reduce your cost basis slightly, but they do not protect you from a large decline. The SEC's investor education materials note that covered calls provide only limited downside protection equal to the premium received.

**Early assignment.** American-style equity options (which AAPL options are) can be exercised by the buyer at any time before expiration. Early assignment is rare but more likely when the option is deep in the money or just before an ex-dividend date. If you get assigned early, your 100 shares are sold at the strike price. You keep the premium but lose the stock position. FINRA's investor alerts recommend understanding assignment risk before selling any option.

**Tax treatment.** In the US, the IRS treats premiums from covered calls as short-term capital gains in most cases, regardless of how long you have held the stock. Selling a covered call can also affect the holding period of your underlying shares under IRS qualified covered call rules. Consult a tax professional before your first trade. Canadian investors should note that the CRA has its own rules on option premium income, which may be treated as capital gains or income depending on your trading frequency and intent.

How to Manage the Position After You Are In

Once the covered call is open, you have three main choices as expiration approaches.

**Let it expire worthless.** If AAPL stays below $220, the option expires on the Friday expiration date with no action required. You keep the premium and still own your shares. You can then sell another call for the next cycle.

**Buy it back to close early.** If the option has lost most of its value — say it drops from $2.15 to $0.30 with two weeks left — many traders buy it back (Buy to Close) and lock in most of the profit early. This frees up the shares to sell a new call sooner. In thinkorswim, right-click your short call position in the Monitor tab and select Buy to Close.

**Roll the position.** Rolling means buying back the current call and simultaneously selling a new call at a later expiration or different strike. thinkorswim makes this easy with a single spread order. Rolling can help you avoid assignment if the stock has moved above your strike, though it does not guarantee you avoid it.

Keep an eye on earnings dates. Implied volatility spikes before earnings announcements, which inflates option premiums. Some traders deliberately sell calls before earnings to capture that elevated premium. Others close positions before earnings to avoid the unpredictable move. Either approach is valid, but going into earnings with a short call is a deliberate choice, not an accident.

Quick Reference: thinkorswim Order Checklist

Before you hit Send on any covered call order, run through this checklist:

1. Do I own at least 100 shares of this stock in this account? Yes / No 2. Is the action field set to Sell to Open? Yes / No 3. Is the order type set to Limit (not Market)? Yes / No 4. Does the quantity match the number of contracts I intend to sell? Yes / No 5. Have I checked the expiration date and confirmed it is the cycle I want? Yes / No 6. Is the strike price out of the money at a level I am comfortable selling my shares? Yes / No 7. Have I noted the ex-dividend date to avoid early assignment risk? Yes / No

If you answered No to any of these, fix it before submitting. A wrong quantity or a Market order on a wide-spread option can cost you more than the premium you were trying to collect.

What options level do I need at Schwab to sell covered calls?

Schwab requires Level 1 options approval to sell covered calls. You apply through your account settings, and Schwab will ask about your income, net worth, and trading experience as required under FINRA Rule 2360. Most applicants with basic investing experience are approved at Level 1 within one to two business days.

Why does my order say 'Sell to Close' instead of 'Sell to Open' in thinkorswim?

Sell to Close means the platform thinks you are closing an existing long call position, not opening a new short one. This usually happens if you accidentally clicked on the wrong side of the options chain or if you do hold a long call you forgot about. Stop, check your existing positions in the Monitor tab, and correct the order action before submitting.

Can I sell a covered call on thinkorswim mobile instead of the desktop?

Yes, thinkorswim mobile supports covered call orders. The steps are similar: tap Trade, enter your ticker, open the options chain, select your expiration and strike, and choose Sell to Open. The desktop version gives you a clearer view of the full options chain and bid/ask spreads, so beginners often find it easier to start there.

What happens to my covered call if the stock pays a dividend before expiration?

Ex-dividend dates increase the risk of early assignment because call buyers sometimes exercise early to capture the dividend. If your short call is in the money and a dividend is coming, monitor the position closely in the days before the ex-date. The Options Industry Council (OIC) has detailed guidance on dividend-related early assignment risk that is worth reading before your first dividend-paying covered call.

How do taxes work on covered call premiums in the US?

The IRS generally treats covered call premiums as short-term capital gains, taxed at ordinary income rates, in the year the option expires, is closed, or is exercised. Selling a covered call can also suspend the holding period on your underlying shares under IRS qualified covered call rules, potentially affecting long-term capital gains treatment on the stock. Speak with a qualified tax professional before trading, as individual circumstances vary.

What is a good delta to target when choosing a covered call strike?

Most income-focused covered call sellers target strikes with a delta between 0.20 and 0.35, meaning the option has roughly a 20-35% chance of expiring in the money based on market pricing. Lower delta strikes (further out of the money) collect less premium but give your stock more room to run before you risk assignment. Higher delta strikes collect more premium but cap your upside sooner and carry a greater assignment risk.