How to Sell Your First Covered Call on Charles Schwab and thinkorswim

The Short Answer: Here Is Exactly What You Do

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 approved on your account, and then enter a sell-to-open order for one call contract at your chosen strike and expiration. The whole process takes about five minutes once your account is set up. This guide walks you through every step, including a real numbers example using Apple (AAPL).

Step 1 — Get Options Approval on Your Schwab Account

Before you can sell a covered call, Schwab must approve your account for options trading. Log in to schwab.com, go to Account Features, then Brokerage & Trading, then Options. You will fill out a short questionnaire about your investing experience, income, and net worth. Selling covered calls requires Level 1 options approval at Schwab, which is the most basic tier. Most investors with a few years of stock-trading experience qualify.

FINRA Rule 2360 requires brokers to collect this information before granting options access. It is not a hurdle designed to stop you — it is a suitability check. If you are denied, you can call Schwab directly and explain your experience. Approval usually arrives within one business day, sometimes instantly.

Step 2 — Make Sure You Own 100 Shares

One standard options contract covers exactly 100 shares. If you own 250 shares of a stock, you can sell two covered calls (covering 200 shares) and still have 50 shares uncovered. Selling a call without the underlying shares is a naked call — a very different, high-risk strategy that requires much higher approval levels. The Options Industry Council (OIC) defines a covered call specifically as a short call position offset by a long position in the underlying stock.

Check your Schwab positions tab before placing the trade. Confirm the share count, the current stock price, and that the shares are held in the same account where you plan to sell the call. Retirement accounts (IRAs) at Schwab can also be approved for covered calls, though the process is the same.

Step 3 — Build the Trade in thinkorswim (Worked AAPL Example)

Let's say you own 100 shares of Apple (AAPL), currently trading at $213.50. You want to generate income by selling a slightly out-of-the-money (OTM) call that expires in about 30 days.

Here is how to do it in thinkorswim:

1. Open thinkorswim (desktop or the Schwab mobile app). 2. Type AAPL in the symbol box and hit Enter. 3. Click the Trade tab, then select All in the options chain view. 4. Find the expiration roughly 25-35 days out — for example, the options expiring in about 30 days. 5. Look at the Call side of the chain. Find the $220 strike. With AAPL at $213.50, the $220 strike is about 3% out of the money. The bid/ask might show $2.10 / $2.20, meaning the market will pay you roughly $2.10 to $2.20 per share. 6. Click the Ask price on the $220 call row. thinkorswim will auto-populate a Sell to Open order. 7. Set the quantity to 1 contract (= 100 shares). 8. Set the order type to Limit and enter a limit price of $2.15 — splitting the bid/ask spread. 9. Set the time-in-force to Day or Good Till Cancelled (GTC). 10. Review the order ticket. It should read: SELL TO OPEN 1 AAPL $220 Call [expiration date] LIMIT $2.15. 11. Click Confirm and Send.

If filled at $2.15, you collect $215 in premium (100 shares × $2.15) immediately credited to your account. That is your maximum income from this trade. In exchange, you agree to sell your 100 AAPL shares at $220 if the stock closes above $220 at expiration.

What Are the Real Risks You Need to Understand?

Covered calls are considered a conservative options strategy, but that does not mean risk-free. Here are the three risks that matter most to a first-time seller.

Capped upside: If AAPL rockets from $213.50 to $240 before expiration, you still sell at $220. You keep the $215 premium plus the $6.50 per share gain from $213.50 to $220 — but you miss the move from $220 to $240. That is $20 per share, or $2,000, left on the table. This is the main trade-off.

Assignment risk: If AAPL closes above $220 at expiration, your shares will almost certainly be called away. Schwab will automatically sell your 100 shares at $220. If you did not want to sell those shares — maybe for tax reasons or because they are a core holding — do not sell the call at that strike. The SEC's investor education materials note that early assignment, while less common, can also happen before expiration on American-style options.

Downside is not protected: The $215 premium gives you a small cushion. If AAPL drops from $213.50 to $195, you lose $18.50 per share on the stock position, offset only by the $2.15 premium you collected. The covered call does not protect you from a large drop in the stock price. You still own the shares and bear their full downside.

How Does the Tax Treatment Work?

In the United States, the IRS treats covered call premiums as short-term capital gains in most situations, regardless of how long you have held the underlying stock. There is an important wrinkle: if your call is deep in the money, IRS rules under Section 1092 (the straddle rules) can suspend the holding period on your shares. This matters if you are trying to qualify for long-term capital gains rates on the stock itself.

For most standard OTM covered calls — like the AAPL $220 example above — the straddle rules typically do not apply, and the premium is taxed as a short-term gain in the year you close or the call expires. If you are assigned and your shares are sold, the premium is folded into the proceeds of the stock sale.

Canadian investors using a non-registered account should note that the Canada Revenue Agency (CRA) generally treats covered call premiums as capital gains, but the CRA may reclassify them as business income if you trade frequently. Consult a tax professional for your specific situation. Neither the IRS nor the CRA guidance is one-size-fits-all.

How to Manage or Close the Trade Before Expiration

You do not have to hold a covered call until expiration. Many experienced sellers close the position early — buying back the call — when they have captured 50% to 80% of the premium. In the AAPL example, if the call drops in value from $2.15 to $0.60 two weeks later because the stock barely moved, you could buy it back for $0.60 and keep $1.55 per share in profit. That frees up your shares to sell another call for the next cycle.

To close in thinkorswim: go back to the Trade tab, find your open position in the Monitor tab or the Position Statement, right-click the short call, and select Buy to Close. Enter a limit order at or near the current ask price.

If the stock surges toward your strike and you want to avoid assignment, you can also roll the call — buying back the current call and simultaneously selling a new call at a higher strike or later expiration. thinkorswim has a built-in Roll function that does this in one order ticket.

Quick Checklist Before You Place Your First Trade

Run through this list before hitting Confirm and Send:

— You own at least 100 shares of the stock in the same Schwab account. — Your account has Level 1 options approval. — You have chosen a strike price you would be comfortable selling your shares at. — You understand that the premium is yours to keep no matter what, but your upside above the strike is capped. — You have set a limit order, not a market order. Market orders on options can result in poor fills due to wide bid/ask spreads. — You know the expiration date and have it on your calendar. — You have considered the tax impact, especially if the shares have a large embedded gain.

The OIC offers free educational courses at their website specifically for covered call sellers if you want to go deeper on strategy before placing your first trade.

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

No. You can sell covered calls in a standard cash account or an IRA as long as you own the underlying shares. Margin is not required because the shares themselves serve as collateral for the obligation. Schwab will simply flag the shares as encumbered while the call is open.

What options approval level do I need at Schwab to sell covered calls?

Schwab requires Level 1 options approval to sell covered calls, which is the entry-level tier. You apply through the Account Features section of schwab.com and answer a short suitability questionnaire as required by FINRA Rule 2360. Most investors with basic stock-trading experience qualify.

What happens if my covered call expires worthless?

If the stock closes below your strike price at expiration, the call expires worthless and you keep the full premium with no further obligation. Your shares remain in your account, and you are free to sell another covered call for the next expiration cycle. This is the outcome most covered call sellers are hoping for.

Can I sell a covered call on thinkorswim mobile, or do I need the desktop app?

You can sell covered calls on the thinkorswim mobile app using the same steps as the desktop version — navigate to the stock's Trade tab, pull up the options chain, and tap the bid price on the call you want to sell. The desktop platform gives you more screen space and customization, but the mobile app is fully functional for placing and managing covered call trades.

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

A common starting point for new sellers is a strike that is 3% to 5% above the current stock price, which is out of the money and gives the stock some room to rise before you face assignment. Look at the option's delta — a delta of 0.20 to 0.30 means roughly a 20-30% chance of expiring in the money, according to OIC guidelines. Choosing a strike you would genuinely be happy selling your shares at is the most important filter.

Will Schwab automatically exercise or assign my covered call at expiration?

Yes. If your call expires in the money — meaning the stock closes above your strike price — the Options Clearing Corporation (OCC) will automatically assign your short call, and Schwab will sell your 100 shares at the strike price. You do not need to take any action; the process is handled automatically. If you want to avoid assignment, you must buy back the call before the market closes on expiration day.