How to Sell a Covered Call on Charles Schwab and thinkorswim: Step-by-Step Guide

The Short Answer: Here Is How You Do It

To sell a covered call on Charles Schwab or its thinkorswim platform, you need to own at least 100 shares of a stock, have options trading approval (Level 1 or higher), and then enter a sell-to-open order for one call contract at your chosen strike and expiration. The whole process takes under five minutes once your account is set up. This guide walks you through every click, plus a real numbers example so you know exactly what to expect.

What You Need Before You Place the Trade

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

First, you need at least 100 shares of the underlying stock. One options contract covers exactly 100 shares. If you own 250 shares of Apple (AAPL), you can sell up to two contracts and still be fully covered.

Second, your Schwab account needs options trading approval. Covered calls fall under Level 1 options at Schwab, which is the lowest tier. To apply, log in to Schwab.com, go to Account > Upgrade Features > Options Trading, and complete the short application. Schwab will ask about your income, net worth, trading experience, and investment objectives. FINRA Rule 2360 requires brokers to collect this information before approving options trading. Most retail investors with some trading history get Level 1 approved within one business day.

Third, you need a margin or standard brokerage account. Covered calls can be sold in an IRA as well, but the IRS has rules about what options strategies are allowed inside retirement accounts — covered calls are generally permitted. Canadian investors using a TFSA or RRSP should check CRA guidance, since the CRA has specific rules about whether options income is treated as business income or capital gains inside registered accounts.

Once those three boxes are checked, you are ready to trade.

Step-by-Step: Selling a Covered Call on the Schwab Website

If you prefer the standard Schwab.com interface over thinkorswim, here is the exact path.

Step 1 — Log in and go to Trade > Options.

Step 2 — Type your ticker in the symbol box. For this example, use AAPL. As of mid-2025, AAPL trades around $210 per share.

Step 3 — Select the expiration date. For a beginner, a 30-to-45 day expiration is a common starting point. The Options Industry Council (OIC) notes that options in this range offer a reasonable balance between premium collected and time commitment.

Step 4 — Choose your strike price. You want an out-of-the-money (OTM) call if your goal is to keep the shares while collecting income. With AAPL at $210, a $220 strike expiring in about 35 days might show a bid of $1.85 and an ask of $1.95. The midpoint is $1.90.

Step 5 — Set the order details. Action: Sell to Open. Quantity: 1 (covers your 100 shares). Order type: Limit. Price: $1.90 (the midpoint). Expiration: Day or Good Till Canceled.

Step 6 — Review and confirm. Schwab shows your maximum gain, maximum loss, and breakeven before you submit.

At $1.90 per share times 100 shares, you collect $190 in premium upfront. That is yours to keep regardless of what happens next.

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

thinkorswim (TOS) is Schwab's advanced trading platform, available as a desktop download, web browser app, or mobile app. The steps below cover the desktop version, which most active covered-call traders prefer.

Step 1 — Open thinkorswim and click the Trade tab at the top.

Step 2 — Type AAPL in the symbol box at the upper left and press Enter.

Step 3 — Click the Options Chain button just below the price chart. The chain shows all available strikes and expirations in a grid.

Step 4 — Find your expiration. Click the expiration row to expand it. For our example, choose the expiration roughly 35 days out.

Step 5 — Locate the $220 strike in the Calls column. You will see the bid ($1.85) and ask ($1.95) side by side. You also see the delta, which for this strike might be around 0.25. A delta of 0.25 means the market is pricing roughly a 25% chance the stock closes above $220 at expiration — useful context for strike selection.

Step 6 — Right-click on the bid price of the $220 call. A menu appears. Select Sell > Single.

Step 7 — A trade ticket opens at the bottom of the screen. Confirm the order reads: Sell to Open, 1 Contract, AAPL $220 Call, your chosen expiration, Limit $1.90.

Step 8 — Click Confirm and Send. Review the order confirmation pop-up, then click Send.

Your order is live. If filled at $1.90, $190 lands in your account immediately (minus any commissions — Schwab charges $0.65 per contract for options as of 2025).

On thinkorswim mobile, the path is nearly identical: tap the ticker, tap Trade, tap the Options Chain, long-press the bid on your chosen strike, and select Sell.

Real Numbers: What This Trade Actually Looks Like

Let's put the full picture together with the AAPL example.

Setup: - You own 100 shares of AAPL, bought at $195. Current price: $210. - You sell 1 AAPL $220 call expiring in 35 days for $1.90 premium. - Commission: $0.65. Net premium collected: $189.35.

Three possible outcomes at expiration:

Outcome A — AAPL closes below $220. The call expires worthless. You keep the $189.35 and still own your 100 shares. Your return on the position for 35 days is roughly 0.9% ($189.35 ÷ $21,000 position value), which annualizes to about 9.4%.

Outcome B — AAPL closes above $220. Your shares get called away at $220. You sell 100 shares at $220, collect the $189.35 premium, and your total proceeds are $22,189.35. Your gain from the $195 purchase price is $2,189.35 on a $19,500 cost basis — a solid return, but you no longer own the shares and miss any further upside above $220.

Outcome C — AAPL drops sharply, say to $185. The call expires worthless and you keep the $189.35. But your shares are now worth $18,500, down from $21,000. The premium softens the loss but does not eliminate it. This is the core risk of owning stock, and the covered call does not protect you from a large decline.

Risks You Should Understand Before You Trade

Covered calls are one of the most conservative options strategies, but they carry real risks. The SEC and FINRA both require brokers to make sure customers understand these before approving options trading.

Capped upside. Once you sell the call, your profit is capped at the strike price plus the premium. If AAPL rockets to $250, you still sell at $220. You gave up $30 per share of gains.

Stock risk remains. The premium you collect is small compared to the potential drop in a stock. A $1.90 premium does not meaningfully protect you if AAPL falls $30. You are still a stockholder first.

Early assignment. American-style options (which most US stock options are) can be exercised by the buyer at any time before expiration. Early assignment is rare on OTM calls, but it can happen around ex-dividend dates. If your call is in the money and the stock goes ex-dividend, the buyer may exercise early to capture the dividend. The OIC has detailed materials on early assignment risk that are worth reading before your first trade.

Tax treatment. The IRS treats covered call premiums as short-term capital gains in most cases. If your call is exercised, the premium is added to the sale proceeds of the stock, which can affect whether your stock gain is short-term or long-term. Specifically, writing a deep in-the-money call can suspend the holding period on your shares under IRS rules. Talk to a tax professional before trading covered calls in a taxable account if you are close to the one-year holding period on your shares. Canadian investors should note that the CRA may treat repeated options writing as business income rather than capital gains, depending on frequency and intent.

How to Manage or Close the Trade Before Expiration

You do not have to hold a covered call until expiration. Many traders close the position early by buying back the call they sold.

To close on thinkorswim: go to the Monitor tab, find your position under Position Statement, right-click the short call, and select Buy to Close. Enter a limit price and send the order.

To close on Schwab.com: go to Accounts > Positions, find the short call, click Trade, and select Buy to Close.

A common rule of thumb is to buy back the call when you can close it for 50% of the original premium. In our AAPL example, if the call drops to $0.95 with two weeks left, you could buy it back for $95, lock in $94.35 of profit, and free up your shares to sell a new call. This is called rolling down and out, and it is one of the main ways active covered-call traders manage their positions over time.

If the stock has moved against you and the call is deep in the money, you can also roll up and out — buying back the current call and selling a new one at a higher strike and later expiration to collect more premium and give the stock room to recover.

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

Yes. Schwab requires Level 1 options approval to sell covered calls. You apply through your account settings under Upgrade Features > Options Trading. FINRA rules require Schwab to collect information about your financial situation and trading experience before granting approval, but most investors with basic trading history are approved quickly.

Can I sell a covered call in my Schwab IRA?

Yes, covered calls are generally permitted in Schwab IRAs, including Traditional and Roth accounts. The IRS allows covered calls inside retirement accounts because the risk is limited to the shares you already own. You still need options approval on the IRA account specifically, which is a separate application from your taxable account.

What happens if my covered call gets assigned on thinkorswim?

If your call is assigned, Schwab automatically sells your 100 shares at the strike price and credits your account. You keep the premium you collected when you sold the call. You will receive a notification, and the transaction settles in the standard T+1 timeframe for equities.

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

Most income-focused traders choose a strike that is 5% to 10% above the current stock price, which is out of the money. On thinkorswim, the delta column in the options chain gives you a quick probability estimate — a delta of 0.20 to 0.30 means roughly a 20% to 30% chance the option finishes in the money. The OIC recommends matching your strike choice to your actual willingness to sell the shares at that price.

How are covered call premiums taxed in the US?

The IRS generally treats covered call premiums as short-term capital gains, taxed at ordinary income rates. If the call is exercised, the premium is added to your stock sale proceeds. Writing a deep in-the-money call can also suspend the long-term holding period on your shares, so consult a tax professional if you are near the one-year mark on any position.

What is the difference between selling a covered call on Schwab.com versus thinkorswim?

Both platforms execute the same trade, but thinkorswim gives you a full options chain with Greeks like delta and implied volatility visible at a glance, making it easier to compare strikes. Schwab.com is simpler and works well for traders who already know which strike and expiration they want. Most active covered-call traders prefer thinkorswim desktop for its depth of information.