How to Screen for and Sell Covered Calls on thinkorswim: Step-by-Step Guide

The Short Answer: Here Is the Full Process

To sell a covered call on thinkorswim, you open the platform, find a stock you already own at least 100 shares of, pull up its options chain, pick a strike price above the current stock price, and sell one call contract per 100 shares. The whole workflow — from screening to order confirmation — takes about five minutes once you know where to click.

This guide walks you through every step in order: setting up a scan to find good candidates, reading the options chain, choosing a strike and expiration, placing the sell-to-open order, and managing the trade afterward. We also cover the real risks and the tax treatment so you are not surprised later.

What You Need Before You Start

You need three things in place before you sell a single covered call on thinkorswim.

First, you must own at least 100 shares of the underlying stock in the same account. Selling a call without owning the shares turns it into a naked call — a very different and much riskier trade that requires a higher margin approval level. FINRA Rule 4210 governs margin requirements, and most brokers enforce a Tier 3 or Level 3 options approval for naked calls. A covered call only needs Level 1 or Level 2 approval at most brokers.

Second, your thinkorswim account must be approved for options trading. Log in, go to Client Services → My Profile → General → Elections & Routing, and check your options level. If you are not approved yet, you submit an application through the same menu.

Third, make sure you are comfortable holding the stock through expiration at your chosen strike price. If the stock closes above your strike on expiration Friday, your shares get called away. That is not a loss — you keep the premium and sell the stock at the strike — but you do lose any upside above that strike.

How to Build a Covered-Call Screener Inside thinkorswim

thinkorswim has a built-in scan engine called Stock Hacker. Here is how to set it up for covered-call candidates.

Step 1: Click the Scan tab at the top of the platform, then choose Stock Hacker.

Step 2: Under Add Study Filter, add these four filters: - Stock Price: between $20 and $500 (avoids penny stocks and very high-priced names where one contract ties up a lot of capital) - Average Volume (30-day): greater than 1,000,000 (liquidity matters — wide bid-ask spreads eat your premium) - Implied Volatility Percentile: greater than 30 (you want elevated IV so premiums are fat; the OIC notes that higher IV inflates option prices, which benefits sellers) - Options Volume: greater than 500 (confirms the options market itself is active)

Step 3: Click Scan. You will get a list of stocks meeting all four criteria. Sort by IV Percentile descending to put the richest-premium candidates at the top.

Step 4: Cross-reference with your existing holdings. You can only write covered calls on stocks you already own, so highlight any matches between the scan results and your portfolio. If you own AAPL, MSFT, or NVDA and they appear in the scan, those are your starting candidates.

Reading the Options Chain and Picking a Strike

Once you have a candidate, click on the ticker to open its detail page, then click the Trade tab. You will see the options chain — rows of calls on the left, puts on the right, organized by expiration date at the top.

Expiration selection: Most covered-call writers target 21 to 45 days to expiration (DTE). That range captures the steepest part of theta decay — the daily erosion of an option's time value — without tying up your shares for months. The CBOE publishes data showing that theta decay accelerates sharply in the final 30 days of an option's life, which is why this window is popular.

Strike selection using delta: Look at the Delta column on the call side. Delta approximates the probability that the option expires in the money. A delta of 0.30 means roughly a 30% chance the stock closes above that strike. Most income-focused covered-call writers target a delta between 0.20 and 0.35 — enough premium to be worth the trade, low enough that you keep your shares most of the time.

Worked example with AAPL: Suppose AAPL is trading at $213.50. You own 100 shares. You open the options chain and look at the expiration 30 days out. You see: - $220 strike call: bid $2.85, ask $2.95, delta 0.28 - $225 strike call: bid $1.60, ask $1.70, delta 0.18 - $215 strike call: bid $4.20, ask $4.35, delta 0.42

The $220 strike looks attractive. Selling at the $2.85 bid collects $285 in premium (one contract = 100 shares × $2.85). That is a 1.3% return on the $213.50 stock price in 30 days, or roughly 16% annualized if you repeat it monthly. Your breakeven on the downside is $213.50 minus $2.85 = $210.65. If AAPL closes above $220 at expiration, your shares are called away at $220 — you still profit from the $6.50 price gain plus the $2.85 premium, for a total of $9.35 per share, or $935 on 100 shares.

Placing the Sell-to-Open Order on thinkorswim

Step 1: In the options chain, right-click on the bid price of the call you want to sell. A menu appears. Choose Sell → Single.

Step 2: An order ticket opens at the bottom of the screen. Confirm these fields: - Action: SELL TO OPEN - Quantity: 1 (for 100 shares; if you own 200 shares you can sell 2 contracts) - Order type: LIMIT (never use a market order on options — the bid-ask spread can be wide and you will get a bad fill) - Limit price: Start at the mid-price, which is halfway between the bid and ask. For the AAPL $220 call above, the mid is ($2.85 + $2.95) / 2 = $2.90. Enter $2.90 as your limit. - Time in force: Day or GTC (Good Till Cancelled) — Day is fine for liquid names

Step 3: Click Confirm and Send. Review the order confirmation screen carefully. It will show your maximum profit (the premium collected), your maximum loss (the stock falling to zero minus the premium), and the margin impact.

Step 4: If your order does not fill within a few minutes, adjust the limit price down by $0.05 increments toward the bid until you get filled. Do not chase the ask — patience usually gets you a fill near the mid on liquid names like AAPL.

Step 5: Once filled, the position appears in your Monitor tab under Position Statement. You will see the short call listed with a negative quantity, offset against your long stock.

Risks You Need to Understand Before Selling Any Call

Covered calls are considered one of the more conservative options strategies, but they carry real risks. Do not skip this section.

Capped upside: This is the most common surprise for new covered-call writers. If AAPL jumps from $213.50 to $235 before expiration, you only receive $220 per share (your strike) plus the $2.85 premium. You miss $12.15 per share of gains. If you believe strongly in a stock's near-term upside, selling a covered call limits your participation.

Downside is not fully protected: The $2.85 premium only offsets the first $2.85 of a stock decline. If AAPL drops to $190, you lose $23.50 per share on the stock, partially offset by the $2.85 premium — a net loss of $20.65 per share. The premium is a cushion, not a shield.

Early assignment risk: American-style options (which most US equity options are) can be exercised at any time before expiration. If your call goes deep in the money, the buyer may exercise early, and your shares get called away before you planned. This is more likely around ex-dividend dates. The OIC has detailed guidance on early assignment risk in its options education materials.

Liquidity risk: Selling calls on thinly traded stocks can leave you stuck in a position you cannot exit at a fair price. Stick to names with options volume above 500 contracts per day, as the screener above filters for.

Concentration risk: If your entire portfolio is one stock and you sell covered calls on it, you are still fully exposed to that stock's downside. Covered calls do not diversify your portfolio.

Tax Treatment: What the IRS and CRA Say

Tax rules for covered calls are not simple. Here is the plain-English version for US and Canadian traders.

US traders (IRS rules): When you sell a covered call, the premium you collect is not taxed immediately. It is an open position. When the call expires worthless, the premium becomes a short-term capital gain regardless of how long you held the stock. If the call is exercised and your stock is called away, the premium is added to the proceeds from the stock sale, and the gain or loss on the stock depends on your holding period for the shares. Critically, IRS rules under Section 1092 (the straddle rules) can suspend the holding period on your stock while a covered call is open if the call is considered "in the money" at the time of sale. This can convert what would have been a long-term gain into a short-term gain. Consult a tax professional before selling calls on shares you have held for less than 12 months.

Canadian traders (CRA rules): The Canada Revenue Agency treats premiums received from writing covered calls as capital gains in most cases for investors (as opposed to traders carrying on a business). The premium is reported in the tax year the option expires, is exercised, or is bought back. If the option is exercised and the shares are sold, the premium is added to the proceeds of disposition. CRA's Interpretation Bulletin IT-479R covers transactions in securities and is the relevant reference. Canadian traders should also be aware that writing covered calls inside a TFSA is generally permitted, but the CRA has challenged cases where options activity is considered a business — frequency and intent matter.

Managing the Trade After You Sell

Selling the call is not the end of the job. Here are the three most common management decisions.

Let it expire worthless: If the stock stays below your strike through expiration, the call expires worthless on expiration Friday. You keep the full premium, your shares remain in your account, and you can sell another call the following week or month. This is the ideal outcome.

Buy it back early (rolling): If the call has lost 50-80% of its value before expiration — say you sold for $2.85 and it is now worth $0.60 — many traders buy it back to lock in most of the profit and free up the position to sell again sooner. On thinkorswim, right-click the short call in your Position Statement and choose Buy to Close. You can also roll the position — simultaneously buying back the current call and selling a new one at a later expiration or higher strike — using the Roll function in the options chain.

Manage an in-the-money call: If the stock rallies above your strike, you have choices. You can let the shares get called away and collect the full profit. Or you can buy back the call at a loss and sell a new call at a higher strike and later expiration, collecting enough new premium to offset the buyback cost. This is called rolling up and out. It only makes sense if the new premium covers the cost of the roll and you still want to own the stock.

Can I sell a covered call on thinkorswim if I only own 50 shares?

No. One standard equity options contract covers exactly 100 shares, so you need at least 100 shares to sell one covered call. If you own 50 shares and sell a call, the position is partially uncovered, which requires a higher margin approval level and carries naked-call risk. Build your position to 100 shares first.

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

Selling covered calls typically requires Level 1 or Level 2 options approval, depending on the broker's internal classification. thinkorswim (TD Ameritrade/Schwab) generally approves covered calls at Level 1. You can check and apply for your approval level under Client Services → My Profile → General → Elections & Routing inside the platform.

How do I avoid getting my shares called away when selling covered calls?

Choose a strike price with a delta of 0.20 or lower, which implies roughly an 80% or better chance the option expires worthless. Selling further out-of-the-money calls reduces premium income but lowers the probability of assignment. You can also buy back the call before expiration if the stock approaches your strike.

What is the best expiration to use for covered calls on thinkorswim?

Most covered-call writers target expirations 21 to 45 days out. This range captures accelerating theta decay — the daily time-value erosion that benefits option sellers — without locking up your shares for too long. The CBOE's research on theta decay supports this window as a sweet spot for premium sellers.

Does selling a covered call affect my long-term capital gains on the stock?

It can. Under IRS Section 1092 straddle rules, selling an in-the-money covered call can suspend the holding period on your shares, potentially converting a long-term gain into a short-term gain if the stock is later sold or called away. The OIC and IRS Publication 550 cover this in detail. Talk to a tax professional if you are close to the 12-month long-term threshold.

Why is my covered call order not filling on thinkorswim?

Most unfilled limit orders are priced too close to the ask rather than the mid-price. Start your limit at the midpoint between the bid and ask, then move it toward the bid in $0.05 increments every few minutes until you get a fill. Avoid market orders on options — the bid-ask spread can cost you significantly more than a patient limit order.