How to Sell Your First Covered Call on Charles Schwab thinkorswim: A Step-by-Step Guide

The Short Answer: Yes, You Can Do This in About Five Minutes

To sell a covered call on Charles Schwab's thinkorswim platform, you open the options chain for a stock you already own at least 100 shares of, right-click the bid price on your chosen strike, select "Sell to Open," and confirm the order. That's the core of it. This guide walks you through every click, explains what you're agreeing to, and shows you a real-dollar example so nothing surprises you on settlement day.

What You Need Before You Place the Trade

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

First, you need at least 100 shares of the underlying stock in your Schwab account. One options contract covers exactly 100 shares. If you own 250 shares of Apple (AAPL), you can sell a maximum of two contracts (covering 200 shares) and leave 50 shares uncovered.

Second, your account needs options approval at Level 1 or higher. Schwab calls this "options trading tier." Level 1 is the minimum and covers covered calls specifically. To apply, log in to Schwab.com, go to Account Features → Brokerage & Trading → Options, and complete the application. Schwab reviews your trading experience, net worth, and investment objectives. FINRA Rule 2360 requires broker-dealers to verify that options trading is suitable for each customer before granting approval, so expect a few questions about your background.

Third, make sure your shares are held in a margin or standard brokerage account, not an IRA with restrictions. Covered calls are permitted in IRAs at Schwab, but you must confirm your IRA has options trading enabled separately.

A Real-Dollar Worked Example With AAPL

Let's say it's a Tuesday morning and AAPL is trading at $213.50 per share. You own 100 shares, so your position is worth roughly $21,350.

You decide to sell one covered call expiring in 21 days (the third Friday of the next options cycle). You pick the $220 strike — that's about 3% above the current price, which puts it out-of-the-money (OTM). The bid price on that strike is $1.85 and the ask is $1.95.

You place a limit order to sell at $1.90 (splitting the bid-ask). One contract = 100 shares, so you collect $190 in premium (before commissions). Schwab charges $0.65 per contract for options, so your net is $190 minus $0.65 = $189.35.

What happens next depends on where AAPL closes at expiration:

— AAPL closes below $220: The call expires worthless. You keep the $189.35 and still own your 100 shares. You can sell another call next cycle.

— AAPL closes above $220: Your shares get called away at $220 each. You receive $22,000 for the shares plus you keep the $189.35 premium. Your total proceeds are $22,189.35. You no longer own the shares.

— AAPL closes right at $220: This is the "pin risk" zone. Assignment is not guaranteed but is likely. Be prepared for either outcome.

Your break-even on the downside is $213.50 minus $1.90 = $211.60. If AAPL drops below that, the premium no longer fully offsets your paper loss on the stock.

Clicking Through thinkorswim: The Exact Steps

Open thinkorswim (desktop or web — the layout is nearly identical). Here is the step-by-step path:

1. Click the "Trade" tab at the top of the screen.

2. Type your ticker (e.g., AAPL) in the symbol box and press Enter. The options chain loads below the price chart.

3. Choose your expiration date from the dropdown or the horizontal expiration bar. Look for a cycle with 14–45 days to expiration (DTE). This range tends to offer the best balance of premium and time decay, according to OIC educational materials on covered call mechanics.

4. Find your strike price in the chain. Strikes are listed in the center column. Calls are on the left side of the chain; puts are on the right. Locate the strike you want — in our example, the $220 strike.

5. Right-click the Bid price in the AAPL $220 call row. A context menu appears. Select "Sell to Open."

6. A trade ticket pops up at the bottom of the screen. Confirm: Action = Sell to Open, Quantity = 1 (or however many contracts you want), Order Type = Limit, Price = your chosen limit (e.g., $1.90).

7. Set the time-in-force. "Day" means the order cancels if unfilled by market close. "GTC" (Good Till Canceled) keeps it open for up to 180 days at Schwab.

8. Click "Review Order," read the confirmation screen carefully, then click "Send Order."

Your order now sits in the market. You can monitor it under the "Monitor" tab → Activity and Positions. Once filled, the short call appears as a negative quantity (e.g., -1 AAPL 220 Call) in your positions.

The Risks You Need to Understand Before You Hit Send

Covered calls are one of the most conservative options strategies, but they carry real trade-offs. Do not skip this section.

Capped upside: Once you sell the call, your profit on the stock is capped at the strike price. In the AAPL example, if the stock rockets to $240, you still only receive $220 per share. You gave up $20 per share of upside in exchange for $1.90 of premium. That's the deal.

You still own the downside: The premium reduces your loss but does not eliminate it. If AAPL drops from $213.50 to $190, you lose roughly $23.50 per share on the stock. The $1.90 premium only cushions that to $21.60. Covered calls do not protect you from a large stock decline.

Early assignment: American-style options (which most US equity options are) can be assigned before expiration. This is rare but happens most often when a call goes deep in-the-money or just before an ex-dividend date. The OIC notes that early assignment is one of the most misunderstood risks for new covered-call writers. If you are assigned early, your shares are sold at the strike price immediately.

Dividend risk: If your stock pays a dividend and your short call is in-the-money, the buyer may exercise early to capture the dividend. Check the ex-dividend date before selling a call.

Liquidity: Stick to liquid underlyings with tight bid-ask spreads (like AAPL, MSFT, SPY). Wide spreads on thinly traded stocks mean you give up more money just entering and exiting the trade.

Tax Treatment: What the IRS and CRA Say

For US investors, the IRS treats covered call premiums as short-term capital gains in most cases, reported in the tax year the position closes (either by expiration, buyback, or assignment). If your call is assigned and your shares are sold, the premium is added to your sale proceeds. The IRS also has "qualified covered call" rules under Section 1092 that can affect the holding period of your underlying shares — specifically, selling a deep-in-the-money call can suspend the long-term holding period clock on your stock. If you are close to the one-year mark on your shares, consult a tax professional before selling a call that is significantly in-the-money.

For Canadian investors, the CRA treats option premiums as capital gains (50% inclusion rate for most investors) when the option expires or is bought back. If the option is exercised and your shares are called away, the premium is added to your proceeds of disposition. The CRA's interpretation bulletin IT-479R covers transactions in securities and is the primary reference for options tax treatment in Canada.

Neither the IRS nor the CRA guidance is simple. Keep records of every trade: date, strike, premium received, and outcome.

Three Quick Tips to Avoid Beginner Mistakes

Start with one contract. Even if you own 500 shares, sell one contract your first time. Get comfortable watching the position, understanding the Greeks (especially delta), and seeing how the premium decays over time before scaling up.

Don't sell calls on stocks you'd be upset to lose. If you own 100 shares of a company you never want to sell, do not sell a covered call on it. Assignment is always possible. Only sell calls on positions where you are genuinely comfortable selling at the strike price.

Use the thinkorswim "Analyze" tab before you trade. Type in your position, go to the Analyze tab, and look at the risk profile graph. It shows your profit and loss at expiration across a range of stock prices. Seeing the capped upside and the downside exposure visually makes the risk real before any money is on the line. Schwab's own education center and the OIC's OptionsEducation.org both offer free tutorials that walk through this tab in detail.

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

Yes. Schwab requires at least Level 1 options approval to sell covered calls. You apply through your account settings under Brokerage & Trading → Options. FINRA rules require Schwab to assess your suitability before granting access, so you'll answer questions about your experience and financial situation.

How many shares do I need to sell one covered call on thinkorswim?

You need exactly 100 shares of the underlying stock per contract. One covered call contract represents the right to buy 100 shares at the strike price. If you own fewer than 100 shares, you cannot sell a covered call on that position.

What does 'Sell to Open' mean on thinkorswim?

'Sell to Open' means you are creating a new short options position — you are the seller, not the buyer, of the contract. For a covered call, this is correct: you sell the call and collect the premium upfront. 'Buy to Open' would mean you are purchasing an option, which is a different strategy entirely.

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

Yes, Schwab allows covered calls in IRAs, but you must apply for options trading within the IRA account separately from your taxable account. Because IRAs are tax-advantaged accounts, the IRS has specific rules about what options strategies are permitted; covered calls are generally allowed because they are considered conservative.

What happens if my covered call gets assigned before expiration?

If you are assigned early, Schwab automatically sells your 100 shares at the strike price and closes the short call position. You keep the premium you collected. Early assignment is most common when the call is deep in-the-money or just before an ex-dividend date, as the OIC explains in its assignment risk materials.

How do I buy back a covered call I already sold on thinkorswim?

Go to the Monitor tab, find your short call position, right-click it, and select 'Buy to Close.' Enter a limit price and send the order. Buying back the call before expiration closes your obligation and frees your shares from the covered call, though you will pay the current market price for the option, which may be more or less than what you originally received.