How to Sell a Covered Call on Fidelity: Step-by-Step Guide for Retail Traders

The Short Answer: Yes, You Can Do This in About 5 Minutes

To sell a covered call on Fidelity, you need to own at least 100 shares of a stock, have options trading approved on your account, and then place a "Sell to Open" order on a call option at your chosen strike and expiration. Fidelity's platform handles the rest — it automatically recognizes your shares as collateral so no extra cash margin is required.

This guide walks you through every click, explains the numbers behind a real trade, and flags the risks you need to understand before you hit confirm.

Step 1 — Get Options Approval on Your Fidelity Account

Before you can trade any option, Fidelity must approve your account for options trading. Covered calls fall under Level 1 (the lowest tier), which Fidelity calls "Covered Call Writing." You apply inside your account settings under "Upgrade Now" in the Options section.

Fidelity will ask about your investing experience, annual income, net worth, and risk tolerance. FINRA rules require brokers to collect this information to ensure options strategies are suitable for each customer. Most investors who already own stocks and have a basic brokerage account are approved for Level 1 within one business day.

If you have a retirement account (IRA) at Fidelity, covered calls are generally permitted there too, but you cannot sell naked calls inside an IRA — the covered position is the only call-selling strategy allowed.

Step 2 — Confirm You Own 100 Shares (the Coverage Requirement)

One standard options contract controls 100 shares. You must own at least 100 shares of the underlying stock before you can sell one covered call contract. If you own 250 shares, you can sell up to two contracts and keep 50 shares uncovered (selling a third contract on those 50 shares would be a naked call, which requires higher approval and margin).

Check your Fidelity positions tab and confirm the share count before moving on. Partial lots from dividend reinvestment or fractional-share programs do not count toward the 100-share requirement.

Step 3 — Choose Your Strike Price and Expiration Date

This is where strategy lives. Two variables drive how much premium you collect and how much upside you give up.

**Strike price:** The price at which you agree to sell your shares if the buyer exercises the option. A strike above the current stock price is called out-of-the-money (OTM). OTM calls let the stock rise further before you get called away, but they pay less premium. A strike at or near the current price (at-the-money, ATM) pays more premium but caps your upside immediately.

**Expiration date:** Most retail covered-call sellers focus on 30-45 day expirations. Options lose time value fastest in the final 30 days — a concept called theta decay — so selling in that window lets you collect the most premium per day of risk taken. The Options Industry Council (OIC) publishes free educational material confirming that theta accelerates as expiration approaches.

**Worked example — AAPL:** Suppose you own 100 shares of Apple (AAPL) currently trading at $213.50. You want to sell one covered call expiring in 35 days. You look at the $220 strike (roughly 3% OTM). The bid/ask is $2.10 / $2.20. You place a limit order at $2.15 — the midpoint. If filled, you collect $215 in cash (100 shares × $2.15) immediately credited to your account.

What you've agreed to: If AAPL closes above $220 at expiration, your 100 shares will be sold at $220 each. Your total gain on those shares would be capped at $220 minus your original cost basis, plus the $215 premium you already pocketed. If AAPL stays below $220, the option expires worthless, you keep the $215, and you still own your shares.

Step 4 — Place the Trade on Fidelity's Platform

Here is the exact click path on Fidelity.com (the same flow applies in the Fidelity mobile app):

1. Go to **Accounts & Trade → Trade**. 2. In the symbol box, type the ticker (e.g., AAPL) and select **Options** from the trade type dropdown. 3. Click **Option Chain** to see all available strikes and expirations. 4. Select your expiration date from the tabs at the top of the chain. 5. Find your chosen strike in the **Calls** column. Click the **Ask** price in that row to pre-populate a sell order. 6. On the order ticket, confirm these fields: - **Action:** Sell to Open - **Contracts:** 1 (or however many you're selling) - **Order type:** Limit (always use a limit order — never market for options) - **Limit price:** Set at or near the midpoint of the bid/ask spread - **Time in force:** Day or Good Till Canceled (GTC) 7. Click **Preview Order**, review every field, then click **Place Order**.

Fidelity will automatically flag the position as covered because it sees your 100 AAPL shares in the same account. You will not be asked to post additional margin.

What Are the Real Risks You're Taking?

Covered calls are widely considered one of the lower-risk options strategies, but risks are real and worth naming clearly.

**Capped upside:** If AAPL jumps from $213.50 to $240 before expiration, you still sell at $220. You miss $20 per share of gains above the strike. The $215 premium does not make up for a $2,000 missed gain.

**Assignment:** The buyer of your call can exercise at any time before expiration (American-style options). Early assignment is uncommon but happens most often just before a dividend ex-date. If assigned early, your shares are sold immediately at the strike price. The SEC and OIC both note that assignment can occur on any business day the option is in-the-money.

**Stock still falls:** A covered call does not protect you from a big drop in the stock. If AAPL falls from $213.50 to $185, your $215 premium offsets only a small part of that $2,850 loss on 100 shares. You are still a stockholder with full downside exposure below your cost basis.

**Liquidity risk:** Thinly traded options have wide bid/ask spreads. Stick to high-volume underlyings like AAPL, MSFT, NVDA, or SPY where spreads are tight and you can exit a position without giving up a lot of edge.

How Does the IRS (and CRA for Canadians) Treat Covered Call Premium?

**US investors:** The IRS treats covered call premium as short-term capital gain in most cases, reported in the tax year the option expires, is closed, or results in assignment. If your call is assigned and your shares are sold, the premium is added to the proceeds from the stock sale. Importantly, selling a deep in-the-money covered call can suspend the holding period on your underlying shares under IRS qualified covered call rules — which could convert a long-term gain into a short-term gain. Consult a tax professional if you're close to the one-year holding period on your shares.

**Canadian investors:** The Canada Revenue Agency (CRA) generally treats covered call premiums as income or capital gains depending on your overall trading activity and intent. Active traders may have premiums taxed as business income; buy-and-hold investors may qualify for capital gains treatment. CRA's Interpretation Bulletin IT-479R covers securities transactions. Canadian investors should review their specific situation with a tax advisor familiar with CRA rules.

In both countries, keep records of every trade: ticker, strike, expiration, premium received, and outcome (expired, closed, or assigned).

How to Close or Roll the Position Before Expiration

You are not locked in until expiration. You can close a covered call at any time by buying back the same contract — this is called "Buy to Close."

If AAPL drops to $200 and your $220 call is now worth only $0.30, you could buy it back for $30 and pocket $185 of your original $215 premium as profit. You then own your shares free and clear again.

"Rolling" means closing the current call and simultaneously opening a new one at a different strike or expiration — usually to extend income or avoid assignment. On Fidelity, you can do this as a spread order (a "roll") on the options ticket, which executes both legs together and reduces the risk of one leg filling without the other.

A common rule of thumb: consider closing early if the call has lost 50-80% of its value (you've captured most of the premium) and there are still several weeks left. This frees up your shares to sell a new call and collect more premium sooner.

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

You need Level 1 options approval, which Fidelity labels as covered call writing. It is the lowest tier and requires only basic suitability information per FINRA guidelines. Most standard brokerage and IRA accounts qualify.

Can I sell a covered call in my Fidelity IRA?

Yes, Fidelity permits covered calls inside traditional and Roth IRAs because the shares you own serve as collateral and no margin is required. You cannot sell uncovered (naked) calls in an IRA. Apply for options trading within the IRA account specifically, as approval is account-by-account.

What happens if my covered call gets assigned on Fidelity?

Fidelity will automatically sell your 100 shares at the strike price and credit the proceeds to your account, usually the next business day. You keep the premium you collected when you sold the call. If you don't want to lose the shares, you need to buy the call back before assignment occurs.

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

Most income-focused traders sell strikes that are 3-7% out-of-the-money with 30-45 days to expiration, balancing premium collected against the chance of being called away. A delta of 0.20-0.35 on the call is a common starting range — it means roughly a 20-35% probability the option expires in-the-money. The OIC offers free tools to help you understand delta and probability of assignment.

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

Options spreads can be wide, and a market order could fill at the bid price, costing you meaningful premium. A limit order set at the midpoint of the bid/ask gives you a fair fill and protects you from unfavorable executions. FINRA recommends investors understand order types before trading options.

How much money can I realistically make selling covered calls on Fidelity?

On a liquid stock like AAPL or MSFT, a 30-45 day OTM covered call typically generates 1-3% of the stock's value per month in premium, depending on implied volatility at the time you sell. Annualized, that is roughly 12-36% in premium income, but your net return depends heavily on whether your shares get called away and at what price you originally bought them. There is no guaranteed return, and a large drop in the stock can easily exceed any premium collected.