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

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

To sell a covered call on Fidelity, you need to own at least 100 shares of a stock, have options trading approved on your account, and then place a "Sell to Open" order for one call contract at your chosen strike and expiration. That's the whole process. This guide walks you through each step so your first trade is clean and deliberate — not accidental.

Step 1: Make Sure Your Account Is Approved for Options

Fidelity requires you to apply for options trading before you can place any options order. Log in, go to Accounts & Trade, select Account Features, then Brokerage & Trading, and click Options. You'll answer questions about your investing experience, income, and net worth.

Fidelity assigns options levels from 1 to 5. Selling covered calls requires Level 1 — the lowest tier. According to FINRA rules, brokers must collect this information to ensure options strategies are suitable for each customer. Most investors with basic stock-trading experience are approved at Level 1 within one business day. If you're already trading stocks on Fidelity, this step is usually quick.

Step 2: Confirm You Own 100 Shares (The Coverage Requirement)

One standard options contract controls 100 shares. If you want to sell one covered call, you must own at least 100 shares of the underlying stock in the same account. Two contracts require 200 shares, and so on. This share ownership is what makes the call "covered" — your shares back the obligation you're taking on.

The Options Industry Council (OIC) defines a covered call as a strategy where the seller holds a long position in the underlying asset equal to the number of shares the contract obligates them to deliver. If you sell a call without owning the shares, that's a naked call — a very different, high-risk strategy that requires a much higher approval level. Fidelity will block a covered call order if your share count falls short.

Step 3: Pick Your Strike Price and Expiration Date

This is where strategy comes in. Let's use a real example.

Suppose you own 100 shares of Apple (AAPL), currently trading at $213. You want to generate income without selling your shares right away. You look at the options chain and find a call expiring in 30 days with a $220 strike price — about 3.3% above the current price. That contract is quoted at $2.10 bid / $2.20 ask. If you sell one contract at $2.10 (the bid), you collect $210 in premium immediately (100 shares × $2.10), minus any commission Fidelity charges.

Here's what each choice means:

- Strike price: $220 means you agree to sell your 100 AAPL shares at $220 each if the buyer exercises the option. You keep the $210 premium no matter what. - Expiration: 30 days out is a common starting point. Shorter expirations decay faster (good for sellers), but you'll need to manage the position more often. - Out-of-the-money (OTM): A strike above the current price gives your stock room to rise before you'd be forced to sell. The OIC notes that OTM covered calls are the most common approach for income-focused sellers who want to keep their shares.

Delta is a useful guide here. A call with a delta of 0.20 to 0.30 has roughly a 20–30% chance of expiring in the money, based on market pricing. Many beginners start in that range to balance premium income against the risk of assignment.

Step 4: Place the Order on Fidelity's Platform

Here is the exact click path on Fidelity's full website:

1. Go to Accounts & Trade → Trade. 2. In the symbol box, type the ticker (e.g., AAPL) and select Options. 3. Choose the expiration date from the calendar at the top of the options chain. 4. Find your strike price in the Calls column. Click the Ask price on the row for your chosen strike. 5. A ticket opens. Confirm the Action is set to Sell to Open. Confirm the contract quantity (1 = 100 shares). Set the order type to Limit and enter your price — typically the bid or one cent above it. 6. Review the order summary. Fidelity shows your maximum gain, maximum loss, and breakeven. Check these numbers before you submit. 7. Click Preview Order, then Place Order.

On Fidelity's mobile app, tap Trade at the bottom, select Options, and follow the same logic. The "Sell to Open" action is the critical field — "Sell to Close" is for exiting an existing long option position, which is not what you want here.

Fidelity charges $0.65 per contract for options trades as of this writing. On one contract, your net premium collected would be $210 minus $0.65, or $209.35.

What Are the Real Risks? (Read This Before You Trade)

Covered calls are considered one of the more conservative options strategies, but they carry real trade-offs that beginners often underestimate.

**Capped upside.** In the AAPL example above, if the stock jumps to $235 before expiration, you still sell at $220. You miss $15 per share — $1,500 — in gains above your strike. The premium you collected ($210) does not make up for that.

**You still own the stock downside.** If AAPL drops from $213 to $185, you lose $28 per share on your stock position. The $210 premium reduces your loss slightly, but it does not protect you from a large decline. A covered call is not a hedge in any meaningful sense.

**Early assignment.** The buyer of your call can exercise it at any time before expiration (American-style options). This is rare before expiration but can happen around ex-dividend dates. If assigned early, Fidelity will automatically sell your 100 shares at the strike price. The SEC notes that assignment can occur at any time the option is in the money.

**Liquidity risk.** Stick to high-volume stocks and ETFs — AAPL, MSFT, NVDA, SPY, QQQ. Thinly traded options have wide bid-ask spreads that eat into your premium. Always use limit orders, never market orders, on options.

**Margin and cash accounts.** In a standard cash account, Fidelity holds your shares as collateral automatically. In a margin account, the mechanics are similar but your overall margin picture matters. Check your account type before trading.

Tax Treatment: What the IRS (and CRA) Expect

For US investors, the IRS treats premium received from selling a covered call as short-term capital gain in the year the option expires, is closed, or results in assignment — not when you collect the cash. The IRS Publication 550 covers options taxation in detail. If your call expires worthless, the premium becomes a short-term gain on the expiration date. If you're assigned and sell your shares, the premium is added to the proceeds of the stock sale, which can affect whether the stock gain is short-term or long-term depending on how long you held the shares.

One important IRS rule: selling a deep in-the-money covered call can "toll" (pause) the holding period on your shares. If you've held AAPL for 11 months and sell an ITM call, your 12-month long-term holding period clock may stop until the call is closed. Consult a tax professional before selling calls on shares you're trying to hold for long-term capital gains treatment.

For Canadian investors, the Canada Revenue Agency (CRA) treats covered call premiums as either income or capital gains depending on whether you're considered a trader or an investor. The CRA's Interpretation Bulletin IT-479R addresses transactions in securities. Most buy-and-hold investors are treated as capital gains recipients, but high-frequency covered call activity can be reclassified as business income. Canadian investors should review their situation with a tax advisor familiar with CRA options guidance.

Managing the Position After You're In

Once your covered call is live, you have three outcomes to prepare for:

**Option expires worthless.** This is the best-case scenario for most income sellers. AAPL stays below $220, the call expires on Friday at 4 p.m. ET, and you keep the $210 premium. Your shares are still yours. You can sell another call the following week or month.

**You buy it back early ("rolling").** If the stock rises toward your strike and you don't want to risk assignment, you can buy back the call (Buy to Close) and sell a new one at a higher strike or later expiration. This is called rolling. Fidelity lets you do this as a spread order or as two separate trades. Rolling costs a small debit but extends your position.

**You get assigned.** If AAPL closes above $220 at expiration, Fidelity will sell your 100 shares at $220 automatically over the weekend. You keep the $210 premium plus the $700 gain on the stock ($220 − $213 × 100). Total proceeds: $2,200 from the stock sale plus $210 premium. If you want to keep running covered calls, you'd need to buy 100 shares again.

Fidelity sends email and app notifications for assignment. Check your account on expiration Friday evenings if you're holding a call that's near or in the money.

What options level do I need on Fidelity to sell covered calls?

You need Level 1 options approval on Fidelity, which is the lowest tier available. You apply through Account Features under Brokerage & Trading, and most investors with basic experience are approved quickly. Level 1 covers covered calls and cash-secured puts — it does not allow naked options or spreads.

Can I sell a covered call in a Fidelity IRA?

Yes, Fidelity allows covered calls in Traditional and Roth IRAs, but you must apply for options trading within the IRA account specifically — approval on your taxable account does not carry over. Because IRAs are tax-advantaged accounts, the usual IRS short-term versus long-term capital gains rules on premiums do not apply until you take distributions. Check Fidelity's IRA options agreement for any additional restrictions.

What happens if I don't have enough shares when my covered call is assigned?

If you sold a covered call and own the required 100 shares per contract, assignment simply results in those shares being sold at the strike price — Fidelity handles it automatically. If somehow your share count dropped below the required amount before assignment (for example, you sold shares after placing the call), Fidelity may liquidate other positions to cover the obligation, which could trigger unexpected gains or losses. Always confirm your share count matches your open call contracts.

How do I choose between a weekly and monthly expiration for my covered call?

Weekly expirations (typically expiring each Friday) offer faster time decay, which benefits the seller, but require more frequent monitoring and re-entry. Monthly expirations (the third Friday of each month) collect more total premium per trade and need less active management, making them popular with beginners. The OIC suggests that newer covered call sellers often start with 30-day expirations to get comfortable with the mechanics before moving to weeklies.

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

Yes. The Options Clearing Corporation (OCC) automatically exercises any option that is $0.01 or more in the money at expiration, and Fidelity processes the resulting assignment over the weekend. You do not need to take any action — your shares are sold at the strike price and the cash appears in your account by Monday. If you want to avoid assignment, you must buy back (Buy to Close) the call before the market closes on expiration Friday.

How much money can I realistically make selling covered calls on Fidelity?

Premium income varies widely based on the stock's volatility, the strike you choose, and the time to expiration. On a $213 AAPL position, a 30-day OTM call might generate $150–$250 per contract, which works out to roughly 0.7%–1.2% of the stock's value per month — or 8%–14% annualized if conditions hold. Higher-volatility stocks like NVDA can generate more premium but also carry greater risk of large price swings that wipe out the premium benefit. CBOE data on implied volatility indexes can help you gauge whether premiums are historically rich or thin before you sell.