How to Sell a Covered Call on Fidelity Step by Step for Beginners

The Short Answer: Yes, You Can Do This in Under 10 Minutes

Selling a covered call on Fidelity means you sell someone else the right to buy 100 shares of stock you already own, and you collect cash — called premium — upfront for doing it. To do it on Fidelity, you need options trading approval (Level 1 or Level 2), at least 100 shares of the stock, and a few clicks inside the platform's options chain. This guide walks you through every step, shows you a real numbers example with Apple (AAPL), and tells you exactly what can go wrong.

Step 1 — Get Options Approval on Your Fidelity Account

Before you can sell a covered call, Fidelity has to approve your account for options trading. Log in, go to Accounts & Trade, then Account Features, then Brokerage & Trading, and click Options. You will fill out a short form about your investing experience, income, and net worth.

Fidelity uses a tiered approval system. Covered calls fall under Level 1 (sometimes called Tier 1 at other brokers). This is the most basic options level and is designed for stock owners who want to generate income. FINRA Rule 2360 requires brokers to collect this suitability information before approving any options trading, so the form is not optional — every broker does it.

Approval usually takes one to two business days. If you are already approved, skip to Step 2.

Step 2 — Make Sure You Own at Least 100 Shares

One options contract covers exactly 100 shares. If you own 250 shares of a stock, you can sell two covered calls (covering 200 shares) and the remaining 50 shares are uncovered. Never sell more contracts than you have shares to back them up — that turns a covered call into a naked call, which requires much higher margin and carries unlimited theoretical risk.

For this guide, assume you own 100 shares of Apple (AAPL). As of mid-2025, AAPL trades around $210 per share, so your position is worth roughly $21,000. That is your collateral.

Step 3 — Choose Your Strike Price and Expiration Date

This is the most important decision you will make. The strike price is the price at which the buyer can purchase your shares. The expiration date is when the contract ends.

Here is a real example. AAPL is trading at $210. You look at options expiring in 30 days and find the $215 strike call is paying about $2.10 per share in premium. Since one contract is 100 shares, you would collect $210 in cash upfront (before commissions).

That $215 strike is out of the money (OTM) by about 2.4%. If AAPL stays below $215 at expiration, the option expires worthless, you keep the $210 premium, and you still own your shares. If AAPL climbs above $215, your shares get called away at $215 — you keep the premium plus any gain from $210 to $215, but you miss any upside above $215.

A few rules of thumb for beginners: - Pick an expiration 21 to 45 days out. Time decay (theta) works fastest in this window, which benefits the seller. - Choose a strike at least 2% to 5% above the current price so you have some room before assignment. - Check the delta of the strike. A delta of 0.20 to 0.30 means roughly a 20-30% chance the option finishes in the money. Lower delta equals lower premium but lower assignment risk. The Options Industry Council (OIC) has free educational materials explaining delta in plain terms.

Step 4 — Place the Trade on Fidelity's Platform

Here is the exact click path on Fidelity's full website (the steps are nearly identical on the mobile app):

1. Go to News & Research, then Options. 2. Type in your ticker — AAPL in our example — and pull up the options chain. 3. Find the expiration date you want using the date tabs across the top of the chain. 4. Locate the $215 strike in the Calls column. You will see a Bid price and an Ask price. The bid is what buyers will pay you right now. 5. Click the Bid price (or the row) to pre-populate a trade ticket. 6. On the trade ticket, confirm the following settings: - Action: Sell to Open - Order type: Limit (set your limit at or near the bid — do not use Market orders for options) - Quantity: 1 contract - Expiration: your chosen date - Strategy: Covered Call (Fidelity may auto-detect this if the shares are in the same account) 7. Review the order. Fidelity will show your maximum gain, maximum loss, and breakeven price. 8. Click Place Order.

Fidelity does not charge a per-contract leg fee to open covered calls as of 2024, but always confirm current commission rates in your account settings because pricing can change.

Once filled, the premium lands in your account as cash immediately. You cannot withdraw it until settlement (one business day for options), but it is yours to keep regardless of what happens next.

What Are the Real Risks? Read This Before You Trade

Covered calls are considered a conservative options strategy, but conservative does not mean risk-free. Here are the three risks every beginner must understand before placing a single trade.

Risk 1 — You cap your upside. If AAPL rockets from $210 to $240 before expiration, your shares get called away at $215. You made $5 per share in stock gain plus $2.10 in premium — a total of $7.10 per share, or $710. But you missed $25 per share of additional gain. That opportunity cost is real.

Risk 2 — The stock can still fall. The $210 premium you collected reduces your cost basis slightly, but if AAPL drops from $210 to $180, you lose $30 per share on the stock. The $2.10 premium only offsets $2.10 of that loss. Covered calls do not protect you from a serious decline. The SEC's investor education materials note that options strategies do not eliminate market risk.

Risk 3 — 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 but more likely just before an ex-dividend date. If your shares get called away early, the trade closes whether you wanted it to or not. The OIC explains early assignment mechanics in detail in its free options education courses.

Tax Treatment: What the IRS Expects You to Report

The premium you collect is not free money — it is taxable income. Here is how the IRS generally treats covered call premiums:

- The premium is not taxed when you receive it. It is taxed when the option expires, is closed, or results in assignment. - If the option expires worthless, the premium becomes a short-term capital gain in the tax year of expiration, regardless of how long you held the stock. - If the option is exercised and your shares are called away, the premium is added to your sale proceeds. The holding period of your shares determines whether the gain is short-term or long-term. - Writing certain in-the-money covered calls can suspend the holding period of your underlying shares under IRS qualified covered call rules (IRC Section 1092). This matters if you are trying to qualify for long-term capital gains rates.

Canadian investors: the Canada Revenue Agency (CRA) treats covered call premiums as either income or capital gains depending on your trading frequency and intent. If you trade options regularly, the CRA may classify all premiums as business income, taxed at your full marginal rate. Speak with a tax professional familiar with CRA options rules before you start.

Always keep records of every trade — entry date, strike, premium received, and close or expiration date. Your broker's 1099-B (US) or T5008 (Canada) will report proceeds, but the cost basis tracking is your responsibility.

How to Close the Trade Early If You Change Your Mind

You do not have to hold a covered call until expiration. You can buy it back at any time by placing a Buy to Close order for the same contract.

Using our AAPL example: you sold the $215 call for $2.10. Two weeks later, AAPL has barely moved and the option is now worth $0.80. You can buy it back for $0.80, locking in a $1.30 per share profit ($130 per contract) and freeing your shares to sell another call or sell the stock outright.

Many experienced covered call traders close positions when they have captured 50% to 80% of the maximum premium, rather than waiting for expiration. This reduces the time your capital is tied up and lowers the chance of a last-minute spike pushing the stock through your strike.

Do I need a margin account to sell covered calls on Fidelity?

No. Covered calls can be sold in a standard cash account because your shares serve as the collateral. You do not need margin for this strategy. Fidelity does require options trading approval even in a cash account.

How much money do I need to start selling covered calls on Fidelity?

You need enough to own at least 100 shares of the stock you want to write calls on. For a stock like AAPL at $210, that is roughly $21,000. Lower-priced stocks let you start with less capital, though liquidity and premium quality vary.

What happens if my covered call gets assigned on Fidelity?

Fidelity will automatically sell your 100 shares at the strike price and deposit the proceeds in your account. You keep the premium you already collected plus any gain from your purchase price up to the strike. No action is required from you — the process is fully automated.

Can I sell covered calls in a Fidelity IRA or Roth IRA?

Yes. Fidelity allows covered calls in both Traditional and Roth IRAs under its Level 1 options approval. Because gains inside an IRA are tax-deferred or tax-free, you avoid the immediate tax complexity of premiums — though IRS contribution and withdrawal rules still apply to the account overall.

What is the best expiration length for a beginner selling covered calls?

Most beginners do well starting with 30-day expirations (monthly options). This window balances meaningful premium income against manageable risk and gives you a clear monthly rhythm. The Options Industry Council recommends that new sellers understand time decay before experimenting with very short or very long expirations.

How do I pick a strike price so I don't lose my shares?

Choose a strike price above the current stock price — ideally 3% to 7% out of the money — so the stock has room to move without triggering assignment. Check the option's delta: a delta under 0.25 means roughly a 75% or better chance the option expires worthless and you keep your shares. Higher strikes mean lower premium but a smaller chance of losing your stock.