How to Sell a Covered Call on Robinhood: Requirements, Steps, and a Real Example

The Short Answer: Yes, You Can Sell Covered Calls on Robinhood

You can sell a covered call on Robinhood as long as you own at least 100 shares of the underlying stock and your account is approved for Level 3 options trading. The process takes about four taps once you are set up. This article walks you through every step, shows you a real numbers example using Apple (AAPL), and is honest about what can go wrong.

What Are the Account Requirements?

Robinhood uses a tiered options approval system. To sell covered calls, you need Level 3 (sometimes labeled 'Level 3 - Selling Options'). Here is what Robinhood checks before granting that level:

- **Age and account type.** You must be at least 18 years old and hold an individual taxable brokerage account. IRAs on Robinhood currently support only Level 2 options, which means covered calls are not available inside a Robinhood IRA at this time. - **Investment experience.** During the application you will answer questions about how many years you have traded options and how many trades you have placed. Robinhood uses these answers to assess suitability, consistent with FINRA Rule 2360, which requires brokers to collect information about a customer's financial situation and options knowledge before approving options trading. - **Employment and net worth.** Basic financial profile questions are required. You do not need to meet a minimum account balance by rule, but Robinhood may factor your stated net worth into the decision. - **The 100-share minimum.** This is not a Robinhood rule — it is how options contracts work. One standard equity options contract always covers 100 shares. If you own 75 shares of a stock, you cannot sell a covered call against it until you buy 25 more.

If Robinhood denies your Level 3 application, you can reapply after updating your profile to reflect more accurate experience. FINRA notes that suitability determinations are based on the information customers provide, so make sure your answers are truthful and complete.

How to Apply for Options Trading on Robinhood

If you are not yet approved, here are the steps:

1. Open the Robinhood app and tap the **Account** icon (bottom right). 2. Go to **Investing**, then scroll to **Options Trading**. 3. Tap **Enable Options** and complete the questionnaire. 4. Robinhood will approve you instantly or ask for more information. Most applicants hear back within one business day.

Once approved at Level 3, you will see a 'Sell' option when you navigate to any stock you own 100 or more shares of.

Step-by-Step: Selling a Covered Call on Robinhood

Here is the exact flow inside the app:

1. **Navigate to the stock.** Tap the search icon, type the ticker (for example, AAPL), and open the stock's detail page. 2. **Tap 'Trade', then 'Trade Options'.** This opens the options chain. 3. **Select 'Sell' and choose 'Call'.** Robinhood will only show you strikes and expirations available for that underlying. 4. **Pick your expiration date.** Most covered-call sellers start with expirations 2 to 6 weeks out. Shorter expirations mean faster time decay (theta) working in your favor, but you have to manage the position more often. 5. **Pick your strike price.** A strike above the current stock price is called out-of-the-money (OTM). That is the most common choice for covered-call sellers who want to keep their shares. 6. **Review the premium.** Robinhood shows you the bid, ask, and midpoint. The midpoint is usually a fair starting price. You can enter a limit order at the mid or slightly below to get filled quickly. 7. **Confirm the order.** Robinhood will show a summary screen. Read it. You are selling one contract, which obligates you to sell 100 shares at the strike price if the buyer exercises.

Robinhood automatically links the call to your existing shares, so the position is treated as covered. You will not be required to post additional margin for a standard covered call.

A Real Numbers Example: AAPL Covered Call

Let's say you own 100 shares of Apple (AAPL) and the stock is trading at $213.50.

You decide to sell one AAPL call with a **$220 strike** expiring in **21 days**. The option is trading at a midpoint of **$2.10 per share**, so you collect **$210 in premium** (2.10 × 100 shares) when the order fills. That premium lands in your account immediately and is yours to keep no matter what happens next.

**Scenario A — AAPL stays below $220 at expiration.** The call expires worthless. You keep the $210 and still own your 100 shares. Your effective cost basis on the shares dropped by $2.10 per share.

**Scenario B — AAPL closes at $225 at expiration.** The buyer exercises the call. You are obligated to sell your 100 shares at $220, even though the market price is $225. You keep the $210 premium, but you miss the $5-per-share gain above $220, which equals $500 in foregone upside. Your total proceeds are $220 × 100 + $210 = $22,210.

**Scenario C — AAPL drops to $195.** The call expires worthless and you keep the $210, but your shares are now worth $1,850 less than when you sold the call. The premium softens the loss but does not eliminate it. This is the core risk of owning any stock.

The $220 strike is about 3% above the current price. That is a common starting point for traders who want a buffer before assignment while still collecting meaningful premium.

Risks You Need to Understand Before You Sell

Covered calls are one of the most conservative options strategies, but they are not risk-free. Here are the three risks that matter most:

**1. Capped upside.** Once you sell the call, your maximum gain on the shares is locked at the strike price plus the premium collected. If AAPL runs from $213 to $240 before expiration, you still sell at $220. You gave up $20 per share of upside in exchange for $2.10 of premium. That trade-off is the whole point of the strategy, but it stings in a fast-moving bull market.

**2. Stock loss is not covered.** If AAPL falls from $213 to $170, you lose $43 per share on the stock. The $2.10 premium reduces that loss to $40.90, but it does not protect you the way a put option would. The Options Industry Council (OIC) specifically notes that covered calls provide only limited downside protection equal to the premium received.

**3. Early assignment.** American-style equity options (which is what you are selling on Robinhood) 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 call is deep in-the-money or when the stock is about to pay a dividend. If you are assigned early, Robinhood will automatically sell your 100 shares at the strike price. You keep the premium but lose the shares.

**A note on taxes.** The IRS treats covered-call premium as short-term capital gain in most cases, regardless of how long you have held the underlying stock. More importantly, selling a call that is 'in the money' or 'qualified covered call' rules can affect the holding period of your shares for long-term capital gains purposes. The IRS Section 1092 straddle rules are complex. Canadian investors should note that the CRA has its own treatment for option premiums. Consult a tax professional before selling covered calls in a taxable account if your shares have large embedded gains.

Tips for Getting the Most Out of Robinhood's Platform

Robinhood is a fine starting platform for covered calls, but it has some limitations worth knowing.

**Use limit orders, not market orders.** Options spreads can be wide, especially on less-liquid names. Always enter a limit order at or near the midpoint of the bid-ask spread. Robinhood defaults to limit orders for options, which is good.

**Stick to liquid underlyings.** AAPL, MSFT, NVDA, and SPY have tight bid-ask spreads and high open interest. Thinly traded stocks have wide spreads that eat into your premium. The CBOE publishes daily volume and open interest data you can use to check liquidity before you trade.

**Watch the earnings calendar.** Implied volatility spikes before earnings reports, which inflates option premiums. Selling a covered call right before earnings sounds attractive because the premium is high, but the stock can move 10% or more in either direction overnight. Many experienced covered-call sellers avoid holding short calls through earnings.

**Set a reminder to manage the position.** Robinhood does not automatically close your position. If you want to buy back the call before expiration to lock in a profit or cut a loss, you have to do it manually. A common rule of thumb: buy back the call when you can close it for 50% of the premium you collected, then sell a new one. This is called 'rolling' the position.

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

You need Level 3 options approval on Robinhood to sell covered calls. You can apply inside the app under Account > Investing > Options Trading. Robinhood evaluates your experience and financial profile as required by FINRA suitability rules before granting Level 3 access.

Do I need 100 shares before I can sell a covered call on Robinhood?

Yes. One options contract represents 100 shares, so you must own at least 100 shares of the stock before you can sell one covered call against it. If you own 200 shares, you can sell up to two covered calls at the same time.

Can I sell covered calls in a Robinhood IRA?

Robinhood IRAs currently support only Level 2 options, which covers buying calls and puts and selling cash-secured puts. Selling covered calls requires Level 3, which is not available in Robinhood IRA accounts as of now. Check Robinhood's current account documentation for any updates to this policy.

What happens if my covered call gets assigned on Robinhood?

If the buyer exercises the call, Robinhood will automatically sell your 100 shares at the strike price you agreed to. You keep the premium you collected, and the cash from the share sale is deposited into your account. Assignment can happen any time before expiration for American-style equity options, not just on the expiration date.

How is the premium from a covered call taxed?

The IRS generally treats covered-call premium as short-term capital gain in the year you receive it, regardless of how long you have held the underlying shares. Selling certain in-the-money calls can also suspend the holding period on your shares under IRS Section 1092 straddle rules, which could affect your long-term capital gains rate. Canadian investors should consult CRA guidance, as option premium has its own treatment under Canadian tax law.

What is a good strike price to choose when selling a covered call on Robinhood?

Most covered-call sellers start with an out-of-the-money strike that is 3% to 10% above the current stock price, which gives the stock room to rise before you risk losing your shares to assignment. A strike closer to the current price pays more premium but increases the chance of assignment. The right strike depends on how much upside you are willing to give up in exchange for income.