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

The Short Answer Before We Dive In

To sell a covered call on thinkorswim, own at least 100 shares of a stock, go to the Trade tab, pull up the option chain, right-click the call strike you want, and select "Sell" then "Single." Confirm the order ticket shows a credit, and send it. That is the whole process in one breath — the rest of this guide walks you through each step with real numbers so nothing surprises you.

What You Need Before You Place the First Trade

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

First, you need options trading approval. TD Ameritrade (now part of Charles Schwab) uses a tiered approval system. Selling covered calls requires Tier 1 or Level 1 options approval, which is the lowest tier. FINRA rules require brokers to collect information about your income, net worth, trading experience, and investment objectives before granting options access. If you have not applied yet, go to Client Services → My Profile → General → Options Trading and complete the application. Approval usually takes one to two business days.

Second, you need at least 100 shares of the underlying stock already in your account. One standard options contract covers exactly 100 shares. If you own 250 shares of Apple, you can sell a maximum of two covered calls (covering 200 shares) and still be fully covered.

Third, your account must hold the shares in a margin or cash account that supports options. The Options Industry Council (OIC) notes that covered calls are one of the few options strategies permitted in IRA accounts at many brokers, so retirement accounts can work too — just confirm with your account settings.

A Real Worked Example: Selling a Covered Call on AAPL

Let's say you own 100 shares of Apple (AAPL) and the stock is trading at $213.50. You want to collect income without selling your shares immediately.

You look at the option chain expiring in 21 days. The $220 strike call — roughly 3% out of the money — is showing a bid of $1.85 and an ask of $1.95. The delta on that strike is about 0.28, meaning the market is pricing roughly a 28% chance the stock closes above $220 at expiration.

You decide to sell one contract at the $220 strike for a limit price of $1.90 (the midpoint between bid and ask). That puts $190 in premium into your account immediately (1 contract × 100 shares × $1.90). Your effective sale price if assigned is $221.90 ($220 strike + $1.90 premium). If AAPL stays below $220 at expiration, the option expires worthless, you keep the $190, and you still own your shares.

This is the core math every covered-call seller works with: premium collected, breakeven shift, and the cap on upside gains.

Step-by-Step: Placing the Order in thinkorswim

Follow these six steps on the thinkorswim desktop platform. The mobile app follows the same logic but the menus look slightly different.

**Step 1 — Open the Trade tab.** At the top of the platform, click the "Trade" tab. Type the ticker symbol (for example, AAPL) in the symbol box and press Enter.

**Step 2 — Expand the option chain.** Below the stock quote, you will see an "Option Chain" section. Click it to expand. You will see calls on the left and puts on the right, organized by expiration date.

**Step 3 — Choose your expiration.** Click the expiration row you want to open. Most income-focused covered-call sellers target 21 to 45 days to expiration (DTE). This range captures the steepest part of time decay, known as theta, without tying up the position for months.

**Step 4 — Find your strike and right-click.** Scroll to the call side. Find the strike price you want to sell — in our AAPL example, that is the $220 call. Right-click directly on the ask price in the "Ask" column on the call side. A menu appears.

**Step 5 — Select Sell → Single.** From the right-click menu, choose "Sell" then "Single." An order ticket will pop up at the bottom of the screen. Confirm the following: the action says "SELL TO OPEN," the quantity is 1 (or however many contracts you want), and the order type is "LMT" (limit). Change the limit price to the midpoint between the bid and ask — in this case $1.90. The order ticket should show a net credit, displayed in green.

**Step 6 — Review and send.** Click "Confirm and Send." A summary screen shows the maximum profit ($190), the maximum loss (your stock dropping to zero minus the premium collected), and the margin/buying power effect (usually zero for a true covered call since your shares serve as collateral). If everything looks right, click "Send."

Your order is now live. You can monitor it under the Monitor tab → Activity and Positions.

Risks You Should Understand Before Selling Any Covered Call

Covered calls are considered a conservative options strategy, but they carry real risks. Do not skip this section.

**You cap your upside.** If AAPL rockets from $213.50 to $240 before expiration, you still sell at $220 (plus the $1.90 premium). You miss $18.10 per share in gains above your strike. That is the direct cost of collecting the premium.

**Assignment can happen early.** American-style options — which is what equity options in the US are — can be exercised by the buyer at any time before expiration, not just on expiration day. The OIC explains that early assignment is most likely when a call goes deep in the money or just before an ex-dividend date. If you are assigned, your 100 shares are sold at the strike price. This can trigger a taxable event.

**Your stock can still fall.** The premium you collected provides only a small cushion. If AAPL drops from $213.50 to $185, your $190 in premium barely dents the loss. Covered calls reduce risk slightly; they do not eliminate it.

**Tax treatment matters.** The IRS treats covered-call premiums as short-term capital gains in most cases, regardless of how long you have held the underlying stock. Selling a call can also affect the holding period of your shares under IRS qualified covered call rules. In Canada, the CRA has its own rules around option premiums and adjusted cost base. Consult a tax professional before you trade at scale.

How to Set a Good Strike Price and Expiration

Choosing the wrong strike or expiration is the most common beginner mistake. Here is a simple framework.

**Strike price:** Look at the delta column in the thinkorswim option chain. A delta of 0.20 to 0.35 on the call side means the market prices roughly a 20–35% chance of the stock closing above that strike. Most income-focused sellers stay in this range — far enough out of the money to keep the shares most of the time, close enough to collect meaningful premium.

**Expiration:** The 21-to-45-day window is widely used because theta decay accelerates in the final weeks of an option's life. Selling a 60-day call and buying it back at 21 days to expiration is a common roll strategy that keeps you in the theta sweet spot continuously.

**Implied volatility:** Check the implied volatility rank (IVR) shown in thinkorswim's Trade tab. IVR above 30 generally means options are priced richer than average — a better time to sell. IVR below 20 means premiums are thin. The CBOE publishes volatility indexes like the VIX that give you a market-wide read on this.

Managing the Trade After You Send the Order

Placing the order is only half the job. Here is what to watch afterward.

**Let it expire worthless.** If the stock stays below your strike, the option expires worthless at 4:00 PM ET on expiration Friday. You keep the full premium and your shares. No action needed — thinkorswim closes it automatically.

**Buy it back early to lock in gains.** If the option loses 50–80% of its value before expiration (for example, you sold for $1.90 and it is now worth $0.40), many traders buy it back to close the position and free up the shares for the next trade. In thinkorswim, right-click the position under Monitor → Positions and select "Buy to Close."

**Roll the position.** If the stock is approaching your strike and you do not want to be assigned, you can roll — buy back the current call and sell a new one at a higher strike or later expiration. thinkorswim has a built-in roll function: right-click the position and select "Roll."

**If you get assigned:** Check your positions the morning after expiration. If your shares were called away, you will see a cash credit for 100 shares × strike price. You can then buy the shares back and start the process again if you want to continue the strategy.

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

Yes. You need at least Level 1 options approval from TD Ameritrade/Schwab before you can sell covered calls. FINRA requires brokers to collect your financial information and trading experience before granting options access. Apply through Client Services → My Profile → General → Options Trading inside the platform.

What happens if my covered call gets assigned before expiration?

If the buyer exercises early, your 100 shares are sold at the strike price and the premium you already collected is yours to keep. Early assignment is most common when a call is deep in the money or just before an ex-dividend date, as the OIC explains. You can then decide whether to repurchase the shares and sell another call.

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

Your maximum gain on any single covered call is the premium collected — nothing more. In our AAPL example, that was $190 per contract. You cannot earn more than the premium because if the stock rises above the strike, your shares get called away at that capped price.

Can I sell a covered call in my IRA on thinkorswim?

Yes, most brokers including TD Ameritrade/Schwab allow covered calls in IRA accounts because the shares you own serve as full collateral. The OIC notes covered calls are one of the few options strategies widely permitted in retirement accounts. Confirm your specific IRA account has options approval enabled before trading.

What is the best strike price to choose for a covered call?

Most income-focused sellers target a call delta between 0.20 and 0.35, which sits roughly 3–8% out of the money depending on the stock's volatility. This range balances premium income against the probability of keeping your shares. You can see the delta for every strike directly in the thinkorswim option chain.

Are covered call premiums taxed as ordinary income or capital gains?

The IRS generally treats covered-call premiums as short-term capital gains, not ordinary income, but the rules are nuanced — especially around qualified covered calls and their effect on your stock's holding period. In Canada, the CRA has separate rules about how option premiums affect your adjusted cost base. Talk to a tax professional before trading covered calls at significant scale.