How to Sell Covered Calls on Robinhood Step by Step

The Short Answer: Yes, You Can Sell Covered Calls on Robinhood

You can sell a covered call on Robinhood in about four taps once your account has Level 2 options approval. You need to own at least 100 shares of the stock, pick a strike price above the current price, choose an expiration date, and sell one call contract per 100 shares. The premium lands in your account the same day.

This guide walks through every step, shows a real numbers example using Apple (AAPL), and flags the risks you need to understand before you place your first trade.

What You Need Before You Start

Three things must be in place before Robinhood will let you sell a covered call.

**1. Options approval at Level 2.** Robinhood uses a tiered approval system. Level 1 lets you buy calls and puts. Level 2 unlocks selling covered calls and cash-secured puts. To get Level 2, you fill out a short questionnaire about your investing experience, income, and net worth. FINRA Rule 2360 requires brokers to collect this information before approving customers for options trading. Robinhood reviews it automatically and usually gives you a decision within minutes.

**2. At least 100 shares of the underlying stock.** One options contract covers exactly 100 shares. If you own 250 shares of AAPL, you can sell a maximum of two covered calls (covering 200 shares). The remaining 50 shares are uncovered and cannot be used.

**3. A margin or cash account with enough equity.** Robinhood Gold (margin) and standard cash accounts both support covered calls. The shares themselves act as collateral, so no extra cash is required to post as margin for this specific strategy. The Options Industry Council (OIC) defines a covered call as one of the lowest-risk options strategies precisely because the stock you already own secures the obligation.

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

**Step 1 — Open the stock's detail page.** Tap the search icon, type the ticker (for example, AAPL), and open the stock page. Confirm you see your share position listed there.

**Step 2 — Tap 'Trade' then 'Trade Options'.** This takes you to the options chain. You will see a grid of expiration dates at the top.

**Step 3 — Select an expiration date.** Tap the expiration date you want. Most covered-call sellers focus on expirations 2 to 6 weeks out. Weekly options (every Friday) give you the most flexibility. The closer the expiration, the faster time decay (theta) works in your favor, but you also have to manage the position more often.

**Step 4 — Choose a strike price.** The options chain shows calls and puts side by side. For a covered call, you want the Calls side. Tap a strike price that is above the current stock price (out-of-the-money, or OTM). The premium shown is per share; multiply by 100 to get your total cash received.

**Step 5 — Set the order.** Tap the strike you chose. Robinhood defaults to a 'Sell' direction when you arrive from your position page. Confirm the order type is 'Sell to Open.' Set quantity to the number of contracts (1 contract = 100 shares). Choose a limit order at or near the mid-price of the bid-ask spread rather than accepting the bid outright — you will usually get a better fill.

**Step 6 — Review and confirm.** Robinhood shows a plain-English summary: the maximum profit, the breakeven price, and what happens at expiration. Read it. Tap 'Confirm.' The premium credit appears in your account balance immediately.

A Real Numbers Example With AAPL

Let's say AAPL is trading at $213.00 on a Monday morning. You own 100 shares. You want to generate income without selling your shares unless the stock climbs significantly.

**Your trade:** - Sell 1 AAPL $220 call expiring in 18 days - Bid: $1.45 | Ask: $1.75 | Mid: $1.60 - You place a limit order to sell at $1.65 - Fill: $1.65 per share × 100 shares = **$165 cash received today**

**Three possible outcomes at expiration:**

*Scenario A — AAPL closes below $220 (call expires worthless).* You keep the full $165 premium. Your shares are untouched. You can sell another call next cycle.

*Scenario B — AAPL closes exactly at $220.* The call is right at the money. It may or may not be exercised. You still keep the $165. If assigned, you sell your 100 shares at $220, which is $7 above where you bought them in this example — a gain on the stock plus the premium.

*Scenario C — AAPL surges to $230.* You are assigned. You sell your shares at $220 (the strike), not $230. You miss the extra $10 per share ($1,000) of upside above the strike. Your total proceeds are $220 × 100 + $165 premium = $22,165. That is still a profitable outcome, but you left money on the table relative to just holding the stock.

This capped-upside scenario is the central trade-off of every covered call. You accept a ceiling on your gains in exchange for immediate cash.

Risks You Should Understand Before Trading

Covered calls are considered conservative relative to other options strategies, but they carry real risks. Do not skip this section.

**Assignment risk.** The buyer of your call can exercise it at any time before expiration (American-style options). Early assignment is rare but happens most often the day before a dividend ex-date. If AAPL declares a dividend and your call is in-the-money, the buyer may exercise early to capture the dividend. You would lose your shares sooner than expected. The OIC has detailed materials on early exercise risk that are worth reading before your first trade.

**Downside is not protected.** A covered call gives you a small cushion equal to the premium you collected. In the AAPL example above, your breakeven on the stock drops from $213.00 to $211.35 ($213.00 minus the $1.65 premium). But if AAPL drops to $190, you lose roughly $21.35 per share net of premium. The call premium does not meaningfully offset a large stock decline.

**Capped upside.** As shown in Scenario C above, strong rallies past your strike mean you miss gains. If you are very bullish on a stock, selling a covered call may not be appropriate.

**Liquidity risk.** Stick to liquid underlyings with tight bid-ask spreads. Wide spreads on thinly traded stocks eat into your premium. AAPL, MSFT, NVDA, and SPY are among the most liquid options markets in the world. FINRA encourages retail investors to check volume and open interest before trading any options contract.

**Robinhood platform-specific note.** Robinhood does not currently support multi-leg options strategies like spreads at the same approval level as covered calls. If you want to add a protective put to create a collar, you will need to place the put as a separate order.

Tax Treatment: What the IRS and CRA Say

**For US investors (IRS rules):** The premium you collect when you sell a covered call is not taxed when you receive it. It is held in a 'open transaction' until the call is closed, expires, or results in assignment. According to IRS Publication 550 (Investment Income and Expenses), the tax treatment depends on the outcome:

- *Call expires worthless:* The premium becomes a short-term capital gain in the tax year the option expires, regardless of how long you held the stock. - *Call is assigned (stock sold):* The premium is added to the proceeds from the stock sale. The holding period of the stock determines whether the gain is short-term or long-term. Important: IRS rules on 'qualified covered calls' affect whether your stock's holding period is suspended while the call is open. If your call is deep in the money, the holding period clock may pause. Consult a tax professional if you are trying to qualify for long-term capital gains rates. - *You buy the call back to close:* The difference between what you sold it for and what you paid to close it is a short-term capital gain or loss.

**For Canadian investors (CRA rules):** The Canada Revenue Agency treats option premiums as capital gains or losses in most cases for individual investors. The CRA's Interpretation Bulletin IT-479R covers transactions in securities. If you are writing covered calls frequently, the CRA may classify the income as business income rather than capital gains, which changes your tax rate. Canadian investors should review IT-479R or speak with a tax advisor.

Neither the IRS nor the CRA considers covered-call premium to be dividend income or interest income. It is options income with its own specific rules.

How to Close a Covered Call Early on Robinhood

You do not have to hold a covered call until expiration. If the call has lost most of its value — say, the stock pulled back and the call is now worth $0.20 when you sold it for $1.65 — you can buy it back cheaply and free up your shares.

To close early on Robinhood: 1. Go to your Positions screen. 2. Tap the open call position. 3. Tap 'Close Position' or manually place a 'Buy to Close' order. 4. Set a limit price near the current ask. 5. Confirm.

Many experienced covered-call sellers use a 'buy back at 80% profit' rule: if you collected $1.65 and the call drops to $0.33 (80% of $1.65 gone), you close it and sell a new call for the next expiration. This practice, sometimes called 'rolling,' lets you collect premium multiple times on the same shares. It also reduces assignment risk since you are no longer short the call.

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

You need Level 2 options approval on Robinhood to sell covered calls. You apply through the app by answering questions about your trading experience, income, and investment goals, as required by FINRA Rule 2360. Most applicants get a decision within a few minutes.

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

No. One options contract represents 100 shares, so you need at least 100 shares to sell one covered call. If you own 50 shares, you cannot sell a covered call on that position until you buy at least 50 more shares to reach the 100-share minimum.

What happens if my covered call gets assigned on Robinhood?

If your call is assigned, Robinhood automatically sells your 100 shares at the strike price and deposits the proceeds in your account. You keep the premium you already collected. You will receive a notification, and the shares and the short call position will both disappear from your account.

How much money can I make selling covered calls on Robinhood?

Your maximum profit is capped at the premium collected plus any gain from the stock price rising to the strike. For example, selling a covered call on AAPL at a $1.65 premium means the most you can earn from that call is $165 per contract. You cannot earn more than that no matter how high the stock climbs above the strike.

Does Robinhood charge a fee to sell covered calls?

Robinhood does not charge a per-trade commission on options. However, the SEC and FINRA charge small regulatory fees on options sales — typically a few cents per contract — which Robinhood passes through to customers. These fees are listed in the order confirmation screen before you submit.

Is selling covered calls on Robinhood good for beginners?

Covered calls are one of the most beginner-friendly options strategies because you already own the stock that secures the trade, which limits your risk compared to naked options. That said, beginners should understand assignment risk and the tax rules outlined in IRS Publication 550 before starting. Practicing with one contract on a liquid stock like AAPL or MSFT is a common way to learn without overexposing yourself.