How to Screen and Sell Covered Calls on Charles Schwab and thinkorswim

The Short Answer: Here Is How to Do It

You can screen and sell covered calls on Charles Schwab using either the Schwab.com web platform or the thinkorswim desktop and mobile app. On thinkorswim, go to the Scan tab, build a filter for stocks you already own with high implied volatility, then open the options chain and sell a call above the current price. The whole process takes under five minutes once you know the steps.

What You Need Before You Start

Three things must be true before you sell a single covered call.

First, you must own at least 100 shares of the underlying stock. One standard options contract covers exactly 100 shares. If you own 250 shares of AAPL, you can sell two covered calls, not three. The third lot of 50 shares is uncovered, and selling a call against it would be a naked call — a very different, much riskier trade.

Second, your Schwab account must be approved for options trading. Schwab uses a tier system. Covered calls fall under Tier 1 (the lowest tier). You apply through Account Features > Options Trading on Schwab.com. FINRA Rule 2360 requires brokers to collect information about your experience and financial situation before granting options approval, so expect a short questionnaire.

Third, you need a basic understanding of assignment risk. When you sell a covered call, you agree to sell your shares at the strike price if the buyer exercises. The Options Industry Council (OIC) defines assignment as the notification that the option seller must fulfill the contract obligation. If your shares get called away, you keep the premium but lose the stock.

Building a Covered Call Screen in thinkorswim

thinkorswim (now fully integrated into Schwab after the TD Ameritrade merger) has a powerful scan engine. Here is how to set one up specifically for covered call candidates.

**Step 1 — Open the Scan Tab.** Launch thinkorswim desktop. Click the Scan tab at the top. Select Stock Hacker from the sub-menu.

**Step 2 — Add Your Filters.** Click Add filter. The most useful filters for covered call sellers are:

- Implied Volatility Percentile (IVP) greater than 40. High IVP means options are pricing in more uncertainty than usual, so premiums are fatter. You want to sell when IV is elevated, not depressed. - Stock Price between $20 and $500. Penny stocks have wide bid-ask spreads that eat your premium. Very high-priced stocks require large share positions. - Average Volume (30-day) greater than 1,000,000. Liquidity matters. Thin markets mean you pay more to enter and exit. - Options Volume greater than 500. Confirms the options market itself is active on this name.

**Step 3 — Filter to Stocks You Already Own.** thinkorswim does not automatically cross-reference your positions, so after the scan runs, manually compare results to your portfolio holdings. Only proceed with names where you hold 100+ shares.

**Step 4 — Save the Scan.** Click the floppy-disk icon and name it something like "CC Candidates." The scan reruns automatically each time you open it.

Picking a Strike and Expiration: A Worked AAPL Example

Let us walk through a real-numbers example using Apple (AAPL).

Assume AAPL is trading at $213.50. You own 100 shares. You want to sell one covered call.

**Choosing the expiration.** Most covered call sellers target 21 to 45 days to expiration (DTE). This range captures the steepest part of time decay (theta). The CBOE has published research showing that options sold in the 30-45 DTE window and closed at 50% of max profit have historically produced favorable risk-adjusted outcomes. Pick the monthly expiration roughly 30 days out.

**Choosing the strike.** Look at the options chain in thinkorswim. You want an out-of-the-money (OTM) call. A common starting point is a delta of 0.20 to 0.30, which means the market is pricing roughly a 20-30% chance the option expires in the money.

For our AAPL example at $213.50, the $220 strike expiring in 32 days might show: - Bid: $2.15 - Ask: $2.25 - Delta: 0.25 - Implied Volatility: 28%

You sell one contract at the $2.15 bid (always use the bid as your starting point; you can try to get filled at the midpoint of $2.20). One contract = 100 shares, so your gross premium collected is $215 to $220.

**What the numbers mean.** If AAPL stays below $220 at expiration, the option expires worthless and you keep the full $215-$220. Your shares stay in your account. If AAPL closes above $220, your shares are called away at $220. You still keep the premium, and you sell shares at $220 — a price you agreed was acceptable when you sold the call. Your total proceeds per share: $220 strike + $2.15-$2.20 premium = $222.15-$222.20.

**Placing the order in thinkorswim.** Right-click the bid price on the $220 strike row. Select Sell > Single. The order ticket populates automatically. Confirm the order type is Limit (not Market — never use Market for options). Review the order: Sell to Open, 1 contract, AAPL $220 Call, your chosen expiration. Click Confirm and Send.

Risks You Need to Understand Before Selling

Covered calls are considered one of the more conservative options strategies, but they carry real risks. Do not let the word "conservative" make you careless.

**Capped upside.** If AAPL jumps from $213.50 to $240 before expiration, you still sell at $220. You collected $215 in premium but missed $2,000 in additional gains (the difference between $240 and $220, times 100 shares). This is the core trade-off: premium income now versus unlimited upside later.

**Stock still falls.** The premium you collected provides only a small cushion. If AAPL drops from $213.50 to $185, your $215 premium offsets only about $2.15 of that $28.50 decline. Covered calls do not protect you from a serious drop in the underlying stock.

**Early assignment.** American-style options (which most US equity options are) can be exercised at any time before expiration. The OIC notes that early assignment most often happens just before an ex-dividend date, when the call buyer may prefer to own the shares and collect the dividend. If you are selling calls on dividend-paying stocks, check the ex-dividend date before you sell.

**Tax consequences.** The IRS treats covered call premiums as short-term capital gains in most cases. More importantly, selling an in-the-money covered call can affect the holding period of your underlying shares, potentially converting a long-term gain into a short-term gain. IRS Publication 550 covers this in detail. Canadian investors should consult CRA guidance on options income, as the tax treatment differs from the US. Talk to a qualified tax professional before selling covered calls in a taxable account.

Managing the Trade After You Sell

Selling the call is not the end of the job. You need a plan for three scenarios.

**Scenario 1 — The option decays to 50% of premium.** Many experienced covered call sellers set a good-till-canceled (GTC) buy-to-close order at 50% of the premium collected the moment they sell. In our AAPL example, if you sold for $2.15, you place a GTC limit order to buy it back at $1.08. If it fills, you have captured roughly half the premium in potentially much less than half the time, and you free up the shares to sell another call. The CBOE has highlighted this 50% profit-target rule as a mechanical way to improve consistency.

**Scenario 2 — The stock rallies toward your strike.** If AAPL moves up to $218 and your $220 call is now worth $3.50, you are facing a potential loss on the option position. You can roll the call: buy to close the $220 and sell to open a higher strike or later expiration for a net credit. Rolling does not guarantee a good outcome, but it gives you more time and a higher exit price on your shares.

**Scenario 3 — The stock drops sharply.** Your call will lose value quickly, which is good for the option position but bad for your stock. You can buy the call back cheaply (say, $0.30) and either sell a new call at a lower strike to collect more premium, or simply hold the shares and wait.

Using the Schwab Web Platform Instead of thinkorswim

If thinkorswim feels like too much, the standard Schwab.com platform works fine for most covered call sellers.

Navigate to Trade > Options. Search your ticker. Select the expiration from the dropdown. The options chain displays calls on the right and puts on the left. Click the bid price of the call you want to sell. The order ticket opens. Select Sell to Open, set quantity to the number of contracts, and use a Limit order at or near the bid.

For screening on Schwab.com without thinkorswim, go to Research > Screener > Stocks. Filter by sector, price range, and market cap to narrow your list. Schwab does not have a native implied volatility percentile filter on the web platform, which is why thinkorswim is the better tool for serious covered call screening. But for executing a trade on a stock you have already identified, the web platform is perfectly adequate.

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

Yes. Schwab requires Tier 1 options approval to sell covered calls. You apply through Account Features on Schwab.com and answer a short questionnaire about your trading experience and finances. FINRA Rule 2360 requires all brokers to collect this information before granting options trading access.

What is a good implied volatility percentile to look for when screening covered calls?

Most covered call sellers look for an implied volatility percentile (IVP) above 40, with 50 or higher being ideal. Higher IVP means options premiums are elevated relative to the stock's own history, so you collect more income for the same risk. Selling calls when IV is very low often produces premiums too small to justify the trade.

How do I avoid getting my shares called away on a covered call?

Choose a strike price far enough above the current stock price that the stock is unlikely to reach it before expiration. A delta of 0.20 or lower means the market prices roughly a 20% or less chance of the option expiring in the money. You can also buy back the call before expiration if the stock rallies toward your strike.

Can I sell covered calls in a Schwab IRA?

Yes, Schwab allows covered calls in IRA accounts with the appropriate options approval level. Selling covered calls in an IRA can simplify tax reporting since gains inside a traditional or Roth IRA are tax-deferred or tax-free respectively. However, you still need to apply for options trading within the IRA separately from your taxable account.

What happens if I sell a covered call and the stock goes ex-dividend before expiration?

The call buyer may exercise early to capture the dividend, which means your shares could be called away before expiration. The OIC notes that early assignment risk rises sharply when a call is in the money and the dividend is larger than the remaining time value in the option. Check the ex-dividend date before selling any covered call on a dividend-paying stock.

How are covered call premiums taxed in the US and Canada?

In the US, the IRS generally treats covered call premiums as short-term capital gains, and selling certain in-the-money calls can reset the holding period on your underlying shares — see IRS Publication 550 for details. In Canada, the CRA may treat option premiums as either income or capital gains depending on your trading frequency and intent. Both US and Canadian investors should consult a qualified tax professional before selling covered calls in a taxable account.