How to Sell a Covered Call on tastytrade for Beginners: Step-by-Step Guide

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

To sell a covered call on tastytrade, you own at least 100 shares of a stock, open the trade ticket for that stock, select 'Sell to Open' a call option at your chosen strike and expiration, and submit the order. tastytrade's layout is built around options trading, so the process is more streamlined than on most retail platforms. This guide walks you through every click, explains the numbers, and flags the real risks before you place your first trade.

What You Need Before You Start

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

First, you need a tastytrade brokerage account approved for options trading. When you open or upgrade your account, tastytrade asks about your trading experience and net worth. Covered calls fall under the lowest options tier — typically called Level 1 — because the risk is considered limited. FINRA Rule 2360 requires brokers to collect this suitability information before granting options approval, so the questionnaire is not optional.

Second, you need at least 100 shares of the underlying stock sitting in that account. One standard options contract covers exactly 100 shares. If you own 250 shares of Apple (AAPL), you can sell up to two covered calls without going 'naked' on any portion.

Third, you need a basic understanding of three numbers: the strike price (the price at which you agree to sell your shares), the expiration date (when the contract ends), and the premium (the cash you collect upfront for selling the contract). Everything else builds on those three.

A Real Worked Example with AAPL

Let's say you own 100 shares of Apple (AAPL), currently trading at $213.50. You want to generate income without selling your shares right now.

You look at the options chain and find the call option expiring in 30 days with a $220 strike price. The bid price on that call is $2.10 per share. Because one contract covers 100 shares, selling one contract puts $210 in your account immediately ($2.10 × 100 shares = $210). That $210 is yours to keep no matter what happens next.

Here is what each outcome looks like at expiration:

— AAPL stays below $220: The call expires worthless. You keep your 100 shares and the full $210 premium. Your effective cost basis on the shares drops by $2.10 per share.

— AAPL closes above $220: Your shares get called away at $220 each. You receive $22,000 for the shares plus you already collected the $210 premium. Your total proceeds are $22,210. If you originally paid $200 per share, that is a $2,210 gain on a $20,000 position — not bad, but you miss any upside above $220.

— AAPL drops sharply to $190: The call expires worthless and you keep the $210, but your shares are now worth $19,000 instead of $21,350. The premium cushions the loss slightly but does not protect you from a big drop. This is the risk most beginners underestimate.

Step-by-Step: Placing the Trade on tastytrade

Step 1 — Find your stock. Type the ticker (for example, AAPL) into the search bar at the top of the tastytrade platform. Click the ticker to open the trade page.

Step 2 — Open the options chain. Click the 'Trade' tab, then select 'Options.' The chain displays all available expirations. Click the expiration date you want — most beginners start with 30 to 45 days out, which is where time decay tends to work in the seller's favor.

Step 3 — Choose your strike. The chain shows calls on the right side and puts on the left. Look at the delta column. A delta of 0.20 to 0.30 on a call means the option is out-of-the-money and has roughly a 20–30% chance of expiring in-the-money, according to the Options Industry Council (OIC). Many covered-call sellers target this range as a balance between premium collected and the probability of keeping their shares.

Step 4 — Set up the order. Click the bid price on the call you want. tastytrade automatically populates a 'Sell to Open' order. The order ticket shows quantity (start with 1 contract), order type (limit is recommended over market for options), and your limit price. Set your limit price at or near the current bid to get filled quickly.

Step 5 — Review the order details. Before you hit confirm, check: correct ticker, correct expiration, correct strike, 'Sell to Open' (not buy), and the premium amount. tastytrade shows your maximum profit, maximum loss, and breakeven price right on the ticket. Read them.

Step 6 — Confirm and send. Click 'Review Order,' then 'Send Order.' You will see the trade appear in your positions tab within seconds. The premium credit lands in your account the next business day after the trade settles.

Risks You Need to Understand Before You Trade

Covered calls are one of the lower-risk options strategies, but 'lower risk' is not the same as 'no risk.' Here are the three risks that matter most.

Capped upside. Once you sell the call, your profit on the stock is capped at the strike price. If AAPL rockets from $213.50 to $250 before expiration, you still sell at $220. You miss $30 per share of gains. This is not a loss in the accounting sense, but it is a real opportunity cost.

Stock price decline. The premium you collect does not protect you from a serious drop. If AAPL falls to $170, your $210 premium barely dents a $4,350 loss on the shares. Covered calls are an income strategy, not a hedge. FINRA's investor education materials make this point explicitly.

Early assignment. American-style options — which is what you trade on US stocks — can be exercised by the buyer at any time before expiration. If AAPL jumps well above your strike, the call buyer may exercise early, and your shares get called away before you expected. tastytrade will notify you if this happens, but it can still catch beginners off guard. The OIC notes that early assignment is most common just before a dividend ex-date, so check the dividend calendar before selling calls on dividend-paying stocks.

Tax Treatment: What the IRS and CRA Say

For US investors, the IRS treats the premium you collect as short-term capital gain in the year the option expires, is bought back, or results in assignment. If your shares get called away, the premium is added to the sale proceeds of the stock, which affects your overall gain or loss calculation. IRS Publication 550 covers options taxation in detail. Holding-period rules can also be disrupted: if you sell a deep in-the-money call, the IRS may treat it as having 'suspended' the holding period on your shares, which could affect whether your stock gain qualifies as long-term. Talk to a tax professional if you are close to the one-year mark on shares you care about.

For Canadian investors, the Canada Revenue Agency (CRA) treats covered call premiums as either income or capital gains depending on your trading frequency and intent. The CRA's Interpretation Bulletin IT-479R provides guidance. Active traders may find premiums taxed as business income rather than capital gains, which carries a higher effective rate. Again, a tax professional familiar with CRA rules is worth consulting before you scale up.

Three Quick Tips to Avoid Beginner Mistakes

Start with one contract. Even if you own 500 shares, sell one covered call first. Get comfortable watching the position, understanding how the premium changes daily, and knowing what assignment feels like before you scale.

Use limit orders, not market orders. Options spreads can be wide, especially on less liquid names. A market order on an options contract can fill at a price significantly worse than the midpoint. Always use a limit order and set it near the bid price.

Don't sell calls right before earnings. Implied volatility — and therefore premiums — spikes before earnings announcements. That sounds attractive, but the stock can move 10–15% in either direction overnight. Selling a covered call into earnings means you collect a fat premium but risk either having your shares called away at a low strike or watching the stock crater with only a small premium as cushion. Most experienced covered-call sellers close or avoid positions in the week before an earnings report.

Do I need special options approval to sell covered calls on tastytrade?

Yes. tastytrade requires you to apply for options trading and be approved for at least Level 1 options, which covers covered calls. The application asks about your income, net worth, and trading experience. FINRA Rule 2360 requires all brokers to collect this information before granting options access, so every platform has this step.

How much money do I need to sell a covered call on tastytrade?

You need enough to own 100 shares of the underlying stock. If AAPL trades at $213.50, that means roughly $21,350 in stock. tastytrade does not require additional margin to sell a covered call because the shares you own serve as the collateral. The premium you collect is deposited into your account, not held as margin.

What happens if my covered call gets assigned on tastytrade?

If the stock closes above your strike price at expiration, your 100 shares are automatically sold at the strike price and the proceeds are deposited into your account. tastytrade handles the mechanics overnight. You keep the premium you collected when you sold the call, and that amount is added to your total sale proceeds for tax purposes.

Can I buy back a covered call before expiration on tastytrade?

Yes. To close the position early, you place a 'Buy to Close' order on the same contract. If the stock has dropped or time has passed, the option will be worth less than what you sold it for, and you can buy it back at a profit. Many traders close covered calls when they have captured 50–80% of the maximum premium to free up the shares for the next trade.

What strike price and expiration should a beginner choose?

A common starting point is an out-of-the-money call with a delta between 0.20 and 0.30 and an expiration 30 to 45 days away. The OIC explains that delta approximates the probability the option expires in-the-money, so a 0.25 delta call has roughly a 25% chance of your shares being called away. The 30-to-45-day window captures a favorable portion of time decay without tying up your shares for too long.

Is selling covered calls on tastytrade good for beginners?

tastytrade's platform is genuinely well-suited for options beginners because the order ticket shows your max profit, max loss, and breakeven automatically. The main risk for beginners is not the platform — it is underestimating how much a stock can drop and overestimating how much the premium protects them. Start with one contract on a stock you are comfortable holding long-term regardless of what the option does.