How to Sell Covered Calls on Interactive Brokers: A Beginner's Step-by-Step Guide

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

Selling a covered call on Interactive Brokers (IBKR) takes four steps: make sure you own at least 100 shares of the stock, get approved for options trading, open the options chain in Trader Workstation (TWS) or the IBKR mobile app, and submit a sell-to-open limit order. Once the order fills, the premium lands in your account the same day and you keep it no matter what happens next.

This guide walks through every step in plain language, with a real numbers example using Apple (AAPL) so you can see exactly what the trade looks like before you place it.

What You Need Before You Place Your First Trade

Three things must be in place before you can sell a covered call on IBKR.

**1. At least 100 shares of the underlying stock.** One standard options contract covers exactly 100 shares. If you own 250 shares of AAPL, you can sell a maximum of two contracts (covering 200 shares) and keep 50 shares uncovered. Selling more contracts than your share count supports turns the position into a naked call — a very different, much riskier trade that requires a margin account and higher approval.

**2. Options trading approval at Level 1 (Covered Calls).** IBKR, like all US brokers, follows FINRA and SEC rules requiring brokers to assess whether options are suitable for each customer before granting access. You apply inside Account Management under 'Trading Experience & Permissions.' IBKR will ask about your investing experience, net worth, income, and risk tolerance. Covered calls are the lowest-risk options strategy, so most applicants with basic investing experience get approved within one business day.

**3. A basic understanding of what you are agreeing to.** When you sell a covered call, you give the buyer the right to purchase your 100 shares at the strike price on or before expiration. In exchange, you collect the premium upfront. If the stock closes above the strike at expiration, your shares get called away (sold) at that strike price. If it closes below, the option expires worthless and you keep both the premium and your shares. The Options Industry Council (OIC) publishes free beginner resources at their website if you want to go deeper on mechanics before trading.

Step-by-Step: Placing the Trade in TWS and the IBKR Mobile App

**Step 1 — Log in and find your stock.** In TWS, type the ticker (for example, AAPL) into the search bar and select the stock. On mobile, tap the magnifying glass, search the ticker, and open the quote screen.

**Step 2 — Open the options chain.** In TWS, right-click the ticker row and choose 'Option Chains.' On mobile, tap 'Options' below the stock quote. You will see a grid of expiration dates across the top and strike prices down the middle, with calls on one side and puts on the other.

**Step 3 — Choose your expiration and strike.** Most beginners start with expirations 21 to 45 days out. This range tends to offer a good balance between premium collected and time for the trade to play out. For the strike, a call with a delta around 0.20 to 0.30 sits out of the money and gives the stock room to move up before your shares get called away. You can see delta in the option chain columns inside TWS.

**Step 4 — Set up a sell-to-open limit order.** Click or tap the bid price of the call you want to sell. TWS will auto-populate a ticket with Action: SELL, Quantity: 1 (change this if you want more contracts), Order Type: LMT, and the bid price as your limit. Do not use a market order for options — the bid-ask spread can be wide and you may fill at a worse price than expected. Set your limit at or slightly below the midpoint between the bid and ask.

**Step 5 — Review and submit.** Check that the order reads 'Sell to Open,' the expiration date is correct, and the strike is what you intended. Click 'Submit.' IBKR will show a confirmation screen with the estimated premium you will receive. Confirm it.

**Step 6 — Monitor and manage.** Once filled, the open position appears in your portfolio under 'Options.' You can let it expire, buy it back early to close the position, or roll it to a later date if the stock moves against you.

A Real Numbers Example: Selling a Covered Call on AAPL

Let's say you own 100 shares of Apple (AAPL) and the stock is trading at $195.00.

You open the options chain and look at the expiration 35 days out. You find the $205 strike call — about 5% above the current price — showing a bid of $1.80 and an ask of $1.95. The delta is roughly 0.22, meaning the market prices in about a 22% chance the stock closes above $205 by expiration.

You place a sell-to-open limit order for 1 contract at $1.87 (the midpoint). The order fills. You immediately collect $187 in premium (1 contract × 100 shares × $1.87), minus IBKR's commission. IBKR's base options commission is $0.65 per contract for most retail accounts, so your net premium is roughly $186.35.

**Scenario A — AAPL closes at $198 at expiration.** The option expires worthless. You keep the $186.35 and your 100 shares. Your effective cost basis on the shares dropped by $1.87 per share.

**Scenario B — AAPL closes at $210 at expiration.** The option is in the money. Your shares get called away at $205. You receive $20,500 for the shares plus you already collected the $186.35 premium. You miss out on the gain from $205 to $210 ($500), but you still made money on the stock from $195 to $205 plus the premium.

**Scenario C — AAPL drops to $180 at expiration.** The option expires worthless and you keep the $186.35. But your shares are now worth $1,500 less than when you sold the call. The premium cushions the loss slightly but does not eliminate it. This is the real risk of the trade.

Risks You Need to Understand Before You Trade

Covered calls are considered a conservative options strategy, but they carry real risks that belong front and center, not in the fine print.

**Capped upside.** Once you sell the call, your maximum gain on the stock is locked at the strike price until expiration. If AAPL rockets from $195 to $230, you only participate up to $205. You sold that upside for $187.

**You still own the stock downside.** The premium you collect is fixed. If the stock falls hard, the premium provides only a small offset. Owning 100 shares of a stock that drops 20% is a $3,900 loss on a $19,500 position. The $187 premium barely moves the needle. FINRA reminds investors that covered calls do not protect against significant declines in the underlying stock.

**Early assignment.** American-style options (which is what most US stock options are) can be exercised by the buyer at any time before expiration, not just on the last day. Early assignment is rare but more likely when the option is deep in the money or just before an ex-dividend date. If you get assigned early, your shares are sold at the strike price immediately.

**Dividend capture risk.** If AAPL goes ex-dividend while your call is in the money, the buyer may exercise early to capture the dividend. Know your stock's dividend calendar before selling calls.

**Liquidity risk.** Stick to options on high-volume stocks like AAPL, MSFT, NVDA, or SPY. Thinly traded options have wide bid-ask spreads that eat into your premium and make it harder to close the position if you change your mind.

Tax Treatment in the US and Canada

**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 shares. There is an important exception: if the call you sell is considered a 'qualified covered call' under IRS rules, the holding period on your shares continues to run. If the call is not qualified — typically because the strike is too close to the current stock price or the expiration is too short — the IRS suspends your holding period on the shares while the call is open. This can turn a long-term gain into a short-term gain if the shares get called away. Consult a tax professional and review IRS Publication 550 for the qualified covered call rules before trading in a taxable account.

**Canada.** The Canada Revenue Agency (CRA) generally treats premiums received from selling covered calls as capital gains, not income, when the calls are written on shares held as capital property. However, if the CRA determines you are trading options as a business, premiums may be taxed as ordinary income. Canadian investors should review CRA Interpretation Bulletin IT-479R and speak with a tax advisor familiar with derivatives.

Common Beginner Mistakes to Avoid on IBKR

**Using market orders.** Always use limit orders for options. Options spreads can be wide and a market order can fill well below the midpoint.

**Selling calls on stocks you do not want to sell.** If you are emotionally attached to a position or need it for a long-term goal, think carefully before capping its upside. Assignment is a real outcome, not just a theoretical one.

**Chasing high premium on volatile stocks.** A call paying $8 in premium sounds great until the stock drops $40. High implied volatility means the market expects big moves in both directions. The premium reflects that risk.

**Ignoring earnings dates.** Implied volatility spikes before earnings, which inflates premiums. But if the stock moves sharply after the report, you are still holding the shares through that move. Many experienced traders avoid selling calls in the week before an earnings announcement.

**Forgetting to close the position.** IBKR will automatically handle expiration, but if you want to close early — for example, to buy back the call at a lower price and lock in most of your profit — you need to place a buy-to-close order manually. A common rule of thumb: buy back the call when you can close it for 50% of the original premium, then sell a new one. This frees up your shares and resets the trade.

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

No. Covered calls can be sold in a cash account because the 100 shares you own serve as the collateral. A margin account is not required and is not necessary for this strategy. IBKR supports covered call trading in both cash and margin accounts.

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

You need enough capital to own at least 100 shares of the stock you want to write calls against. For a stock like AAPL trading near $195, that means roughly $19,500 in shares. There is no separate cash requirement to sell the call itself since your shares are the collateral.

When does the premium show up in my IBKR account after I sell a covered call?

The premium credit appears in your account on the same trading day the order fills, typically within seconds of execution. Options in the US settle on the next business day (T+1), so the cash is fully settled and available the following day.

What happens if I sell a covered call and then want to sell my shares before expiration?

You cannot sell the shares without first closing the covered call position, or you will be left with a naked short call, which requires higher margin and carries unlimited risk. To exit cleanly, place a buy-to-close order on the call first, then sell your shares. IBKR will warn you if you try to sell the shares while the call is still open.

Is selling covered calls allowed in a Roth IRA or TFSA?

In the US, covered calls are generally permitted in a Roth IRA, but your IRA custodian must approve options trading and the account must be set up for it. In Canada, covered calls are allowed inside a Tax-Free Savings Account (TFSA) at most brokers, including IBKR Canada, subject to account approval. Check with your specific account type and IBKR's options permissions for registered accounts.

How do I roll a covered call on Interactive Brokers if the stock moves up toward my strike?

Rolling means buying back the existing call (buy-to-close) and simultaneously selling a new call at a higher strike or later expiration. In TWS, you can do this as a combination order on the options chain to execute both legs at once and reduce execution risk. Rolling lets you extend the trade and potentially collect additional premium without giving up your shares.