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

The Short Answer: Selling a Covered Call on thinkorswim Takes About 60 Seconds

You can sell a covered call on Charles Schwab's thinkorswim platform in four clicks once your account has options approval: open the Trade tab, pull up your stock's option chain, right-click the call strike you want, and select Sell. That's the whole mechanical process. The rest of this guide walks you through each step in detail, shows you a real AAPL example with actual numbers, and flags the risks you need to understand before you place the trade.

What You Need Before You Place the 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 underlying stock in your Schwab account. One standard options contract covers exactly 100 shares. If you own 250 shares of Apple, you can sell a maximum of two contracts (covering 200 shares) and keep the remaining 50 shares uncovered.

Second, your account needs options trading approval at Tier 1 (sometimes called Level 1 or Covered Calls). Schwab assigns tiers based on your experience, net worth, and investment objectives. You apply inside the account settings under "Options" and Schwab reviews it, usually within one business day. FINRA Rule 2360 requires brokers to collect this information before approving options trading, so every broker does this — it is not unique to Schwab.

Third, if you are in a registered account in Canada (TFSA, RRSP), confirm with Schwab that covered calls are permitted in that account type. The CRA allows covered calls inside registered accounts, but individual custodians set their own rules on top of that.

If all three boxes are checked, you are ready to go.

Step-by-Step: Selling a Covered Call on thinkorswim

The steps below apply to both the desktop thinkorswim platform and the thinkorswim web version available through schwab.com.

**Step 1 — Log in and go to the Trade tab.** At the top of thinkorswim, click the "Trade" tab. This is where all order entry happens.

**Step 2 — Enter your ticker symbol.** Type your stock symbol in the symbol box at the top left. For this example, use AAPL. Press Enter. The option chain loads automatically below the stock quote.

**Step 3 — Choose your expiration date.** The option chain shows a list of expiration dates. Click the expiration you want to expand it. Most covered-call sellers focus on expirations 21 to 45 days out. That range tends to offer the best balance of premium collected versus time remaining, a principle the Options Industry Council (OIC) highlights in its covered-call educational materials.

**Step 4 — Find your strike price.** The chain shows calls on the right side and puts on the left. Look at the call side. Each row is a different strike price. The columns show Bid, Ask, Delta, and other Greeks. The Bid price is what you will receive per share if you sell at market.

**Step 5 — Right-click the Bid price of your chosen strike.** A context menu appears. Select "Sell" and then "Single." This opens the order ticket at the bottom of the screen.

**Step 6 — Review the order ticket.** Confirm: Order type = Sell to Open. Quantity = number of contracts (1 contract = 100 shares). Price = the limit price pre-filled from the Bid. Change this to a limit order if it is not already set to one — never use a market order on options.

**Step 7 — Set your limit price.** Start at the natural midpoint between the Bid and Ask. If the Bid is $1.85 and the Ask is $2.05, try $1.95 first. You can always lower toward the Bid if the order does not fill.

**Step 8 — Confirm and send.** Click "Confirm and Send." A summary screen shows your maximum gain, maximum loss, and breakeven. Review it, then click "Send."

Your order is now live. Once it fills, you will see the short call position appear in your Position Statement.

A Real Worked Example with AAPL Numbers

Let's say AAPL is trading at $213.50 on a Monday morning. You own 100 shares. You want to sell one covered call expiring in 30 days.

You look at the $220 strike call expiring in 30 days. The Bid is $2.10, the Ask is $2.25, and the Delta is 0.28. You place a limit order to sell at $2.18 (near the midpoint). It fills.

Here is what that means in dollars: - **Premium collected:** $2.18 × 100 shares = $218 cash deposited into your account immediately. - **Your effective sale price if assigned:** $220 strike + $2.18 premium = $222.18 per share. - **Breakeven on the downside:** $213.50 − $2.18 = $211.32. Your shares have to fall below $211.32 before you are worse off than simply holding them. - **Maximum gain on the position:** $218 in premium + any stock appreciation up to $220 = capped at $220 per share total.

If AAPL closes below $220 at expiration, the call expires worthless, you keep the $218, and you still own your 100 shares. You can then sell another call the following month.

If AAPL closes above $220 at expiration, your shares are called away at $220. You keep the $218 premium and receive $22,000 for the shares. Your total proceeds are $22,218 — but you no longer own the stock.

This is a clean, simple outcome. The complications come from what happens in between, which is why the next section matters.

Risks You Should Understand Before You Click Send

Covered calls are one of the lower-risk options strategies, but they carry real risks that deserve honest attention — not a footnote.

**Capped upside.** If AAPL jumps from $213.50 to $240 before expiration, you still only receive $220 per share (plus the $2.18 premium). You gave up $17.82 per share of gains in exchange for $2.18 in premium. That trade-off is the core of every covered call.

**Assignment can happen early.** American-style options — which is what equity options on US stocks are — can be exercised by the buyer at any time before expiration, not just on expiration day. Early assignment is rare but it does happen, most often just before an ex-dividend date. The OIC explains this in detail in its options education resources. If you are assigned early, your shares are gone and you receive the strike price in cash.

**The stock can still fall.** The premium you collected provides a small cushion, but it does not protect you from a large drop. If AAPL falls from $213.50 to $180, your $2.18 premium covers only a fraction of that loss. You are still a stockholder and you bear the full downside risk of owning the shares, minus the premium.

**Tax treatment is not simple.** The IRS treats covered-call premiums as short-term capital gains in most cases, regardless of how long you have held the 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 review CRA guidance on options income, as premiums are generally treated as capital gains or income depending on your trading pattern. Consult a tax professional before you start.

**Liquidity matters.** Stick to liquid underlyings with tight bid-ask spreads. AAPL, MSFT, NVDA, and SPY all have active options markets. Thinly traded options can cost you significantly on the spread alone.

How to Choose the Right Strike and Expiration

Strike and expiration selection is where most of the strategy lives. Here are the practical guidelines most covered-call sellers use.

**Strike price:** Sell out-of-the-money (OTM) calls if you want to keep the stock and still participate in some upside. A Delta between 0.20 and 0.35 is a common starting range — it means the market is pricing roughly a 20–35% chance the call finishes in the money. In the AAPL example above, the $220 strike had a Delta of 0.28, which sits right in that range. Sell at-the-money (ATM) calls if you want maximum premium and are comfortable being called away.

**Expiration:** The 21-to-45-day window captures the steepest part of the time-decay curve (theta). Options lose value faster as expiration approaches, which benefits the seller. Going shorter than 21 days means less premium per trade and more transaction costs from rolling more frequently. Going longer than 60 days means more premium but also more time for the stock to move against you.

**Implied volatility:** Higher implied volatility (IV) means higher premiums. Check the IV Rank or IV Percentile on thinkorswim's option chain — it shows where current IV sits relative to the past year. Selling calls when IV is elevated gives you more premium for the same strike and expiration. CBOE's VIX is the most widely cited measure of broad market implied volatility and can give you a sense of the overall options-pricing environment.

Managing the Trade After You Sell

Selling the call is not the end of the job. You have three main choices as expiration approaches.

**Let it expire.** If the call is out of the money with a few days left and the premium has decayed to near zero, many traders simply let it expire worthless. No action needed — the position closes automatically.

**Buy it back early.** If the call has lost 50–80% of its value well before expiration, some traders buy it back to lock in the gain and free up the shares for the next trade. On thinkorswim, right-click the position in your Position Statement and select "Buy to Close."

**Roll the position.** Rolling means buying back the existing call and simultaneously selling a new one at a different strike, expiration, or both. thinkorswim makes this easy with a single "Roll" order. Rolling out in time (to a later expiration) is a common way to avoid assignment when the stock has moved above your strike. Rolling up and out (higher strike, later expiration) lets you capture more upside while still collecting a net credit.

Keep a simple trade log. Record the date, ticker, strike, expiration, premium collected, and outcome. Over time, this data tells you which setups actually work for your stocks and your risk tolerance.

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

Yes. Schwab requires options trading approval at Tier 1 (Covered Calls) before you can sell any options. You apply through your account settings under the Options section, and Schwab typically reviews the application within one business day. FINRA Rule 2360 requires all brokers to collect suitability information before granting options approval, so this step is standard across every brokerage.

What happens if my covered call gets assigned on thinkorswim?

If the buyer exercises the call, Schwab will automatically sell your 100 shares at the strike price and deposit the proceeds in your account. You keep the premium you collected when you sold the call. Assignment can happen any time before expiration on American-style equity options, not just on expiration day, so check your positions around ex-dividend dates.

Can I sell a covered call in my Schwab IRA?

Yes, Schwab allows covered calls inside Traditional and Roth IRAs at the appropriate options approval tier. Because an IRA is a tax-advantaged account, the premium you collect is not taxed in the year you receive it — taxes are deferred (Traditional IRA) or potentially eliminated (Roth IRA). Review IRS Publication 590 and consult a tax advisor for your specific situation.

How do I close a covered call early on thinkorswim?

Go to your Position Statement, find the short call position, right-click it, and select "Buy to Close." This opens an order ticket to buy back the call at the current market price. Many traders close early when the option has lost 50–80% of its original value to lock in the gain and redeploy the capital sooner.

What is a good delta to target when selling covered calls?

Most covered-call sellers target a delta between 0.20 and 0.35 on the call they sell, which corresponds to an out-of-the-money strike with roughly a 20–35% probability of finishing in the money at expiration. Lower delta means less premium but more room for the stock to run before you get called away. Higher delta means more premium but a greater chance of assignment.

Are covered call premiums taxed as ordinary income or capital gains?

In most cases, the IRS treats premiums from selling covered calls as short-term capital gains, regardless of how long you have held the underlying stock. However, selling a call can also affect the holding period of your shares under the qualified covered call rules outlined in IRS Publication 550. Canadian investors should check CRA guidance, as the tax treatment depends on whether options activity is considered capital or income in nature.