How to Place a Covered Call Order on Charles Schwab and thinkorswim (Step-by-Step)

The Short Answer: Here Is Exactly How to Do It

To sell a covered call on Charles Schwab, open the Trade tab, search your ticker, select Options, choose Sell to Open on your desired strike and expiration, set the order type to Limit, and confirm you already own 100 shares per contract. On thinkorswim (now integrated into Schwab's platform), go to the Trade tab, pull up the options chain, right-click the call strike you want, select Sell, and route the order as a single-leg or as a covered call spread. Both platforms require options trading approval before you can place the order.

Before You Place a Single Order: Account Approval and Requirements

Schwab and thinkorswim both require you to apply for options trading authorization. Selling covered calls is the most basic level — typically called Level 1 at Schwab. You apply inside your account settings under Options Trading. FINRA Rule 2360 requires brokers to verify that options strategies are suitable for each customer, so expect questions about your income, net worth, and investing experience.

You also need to own at least 100 shares of the underlying stock for every one contract you plan to sell. One contract always controls 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 calls on shares you do not own is a naked call — a completely different and far riskier strategy that requires a higher approval level.

Placing the Order on Schwab's Web Platform (Step-by-Step)

Step 1 — Log in and go to Trade > Options.

Step 2 — Type your ticker in the symbol box. Use AAPL for this example. Schwab will show you the options chain.

Step 3 — Select your expiration date. Most covered-call sellers target 30–45 days to expiration (DTE) to capture the fastest time-decay window, though shorter or longer cycles work too.

Step 4 — Find your strike. Say AAPL is trading at $213.50. You want to sell the $220 call expiring in 35 days. That strike is roughly 3% out-of-the-money (OTM). The bid is $2.10 and the ask is $2.20.

Step 5 — Click Sell on the $220 call row. A ticket appears. Make sure the Action reads Sell to Open and the number of contracts matches your share count (e.g., 1 contract for 100 shares).

Step 6 — Set Order Type to Limit. Enter a limit price of $2.15 — the midpoint between bid and ask. Avoid market orders on options; the bid-ask spread can cost you real money.

Step 7 — Choose your duration. Day order expires at market close. Good Till Canceled (GTC) stays open up to 180 days. Most traders use Day or GTC depending on how actively they manage fills.

Step 8 — Review and Confirm. Schwab shows your maximum gain, maximum loss, and breakeven. Confirm the order.

At $2.15 per share × 100 shares, you collect $215 in premium upfront. That premium is yours to keep regardless of what happens next — it is credited to your account immediately upon fill.

Placing the Order on thinkorswim (Desktop and Mobile)

thinkorswim is Schwab's advanced trading platform, available as a desktop download, a web app, and a mobile app. The workflow is slightly different but the logic is identical.

Desktop steps: 1. Open thinkorswim and click the Trade tab at the top. 2. Type your ticker (e.g., MSFT) in the symbol box. MSFT is trading at $430.00 in this example. 3. The options chain appears below the chart. Calls are on the right side by default. 4. Find the expiration you want — click the date row to expand it. 5. Right-click the bid price on the $440 call (roughly 2.3% OTM). A context menu appears. 6. Select Sell > Single. A trade ticket populates at the bottom of the screen. 7. Verify the order reads SELL -1 MSFT [expiration] 440 CALL. The minus sign confirms you are selling (short) the call. 8. Set the price to a limit at the mid. If the bid is $3.80 and the ask is $4.00, try $3.90. 9. Click Confirm and Send. Review the order details and hit Send.

Mobile thinkorswim: Tap the chart icon, search your ticker, swipe to the Options chain tab, tap the strike price, select Sell, and follow the same limit-price and confirm steps.

Pro tip: thinkorswim also lets you place a covered call as a single combination order under the Covered Stock strategy in the All Strategies menu. This is useful if you are buying the shares and selling the call at the same time — called a buy-write. The Options Industry Council (OIC) has free tutorials on buy-write mechanics if you want to go deeper.

A Worked Example: AAPL $220 Call, 35 Days Out

Here is how the numbers play out from entry to expiration.

Setup: - You own 100 shares of AAPL, purchased at $200.00 per share. - AAPL is currently trading at $213.50. - You sell 1 contract of the AAPL $220 call expiring in 35 days for a $2.15 limit fill. - Premium collected: $215 (credited to your account immediately).

Scenario A — AAPL stays below $220 at expiration: The call expires worthless. You keep the full $215 premium. Your shares are untouched. Annualized yield on the premium alone: roughly 13.4% ($215 ÷ $21,350 position value × 365 ÷ 35 days). You can sell another call next cycle.

Scenario B — AAPL rises above $220 at expiration: Your shares are called away at $220. You sell 100 shares at $220, plus you keep the $215 premium. Total proceeds: $22,215. Your cost basis was $200, so your profit is $2,215 on a $20,000 investment — a solid 11.1% gain in 35 days. The trade-off: you miss any upside above $220.

Scenario C — AAPL drops sharply, say to $190: The call expires worthless and you keep the $215 premium. But your shares are now worth $19,000 versus your $20,000 cost basis. The $215 offsets part of the loss, but you still have an unrealized loss of $785 on the stock. This is the core risk of covered calls — the premium provides a small cushion, not full downside protection.

Breakeven price: $200.00 cost basis minus $2.15 premium = $197.85. Below that level, you are in a net loss position on the combined trade.

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

Covered calls are often marketed as low-risk, but that framing is incomplete. Here are the honest risks:

Capped upside: Once AAPL clears $220 in the example above, every dollar of gain belongs to the buyer of your call, not you. In a strong bull run, this can mean leaving significant money on the table.

Stock still carries full downside: The premium you collect is typically 1–3% of the stock price. If the stock drops 20%, the premium barely dents your loss. You are still a stockholder first.

Early assignment: American-style options (which cover most US stocks) can be exercised by the buyer at any time before expiration. If AAPL jumps and your call goes deep in-the-money, you could be assigned early — meaning your shares are sold before you planned. FINRA and the OIC both note that early assignment is more likely just before an ex-dividend date.

Liquidity risk: Thinly traded options have wide bid-ask spreads. Stick to high-volume underlyings like AAPL, MSFT, NVDA, or SPY where spreads are tight and fills are fast.

Tax treatment: In the US, the IRS treats premium from covered calls as short-term capital gain in most cases, regardless of how long you have held the stock. Selling a deep in-the-money call can also suspend the holding period on your shares, potentially converting a long-term gain into a short-term one. Canadian investors should note that the CRA has its own rules on option premium income — consult a tax professional before trading in a non-registered account. Neither the IRS nor the CRA guidance is simple here, so get qualified advice.

Order Management: What to Do After You Place the Trade

Selling the call is not the end of the job. Here is what to watch:

Closing early: You can buy back the call at any time before expiration. If the call you sold for $2.15 drops to $0.50 because AAPL went sideways, you can buy it back for $0.50, lock in a $1.65 profit, and free up your shares to sell a new call. Many traders use a 50% profit target as a rule — close when the call loses half its value.

Rolling: If AAPL is approaching $220 and you want to keep your shares, you can roll the call — buy back the current call and simultaneously sell a new call at a higher strike or later expiration. thinkorswim makes this easy with a single roll ticket. Rolling does not guarantee you avoid assignment, but it gives you more room.

Monitoring on Schwab: Use the Positions tab to see your open call position alongside your shares. The Gain/Loss column updates in real time. On thinkorswim, the Monitor tab shows your full position, delta, and days to expiration at a glance.

Setting alerts: Both platforms let you set price alerts. On thinkorswim, right-click any price level on the chart and select Set Alert. This way you get a notification if AAPL approaches your strike without having to watch the screen all day.

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

Yes. Schwab requires you to apply for options trading authorization, and covered calls fall under the most basic approval level (Level 1). You apply through Account Settings > Options Trading and answer questions about your experience and finances. FINRA Rule 2360 requires brokers to conduct this suitability review before granting access.

What is the difference between selling a covered call on Schwab's web platform versus thinkorswim?

Both platforms use the same underlying brokerage account and the same order routing, so fills and costs are identical. Schwab's web platform is simpler and better for beginners, while thinkorswim offers advanced charting, a full options chain with Greeks, and strategy-level order types like the buy-write. Most active covered-call traders migrate to thinkorswim once they are comfortable with the basics.

How do I avoid getting my shares called away before expiration?

Early assignment is most likely when your call is deep in-the-money and the stock is about to pay a dividend — the call buyer may exercise early to capture that dividend. To reduce the risk, sell calls that are out-of-the-money and monitor your position closely around ex-dividend dates. If the call goes deep in-the-money, consider buying it back and rolling to a higher strike or later expiration before assignment occurs.

What limit price should I use when selling a covered call?

Start at the midpoint between the bid and the ask — for example, if the bid is $2.10 and the ask is $2.20, enter a limit of $2.15. On liquid tickers like AAPL or MSFT, you will often get filled at or near the mid. Never use a market order on options because the bid-ask spread can cause you to sell for significantly less than the fair value.

How are covered call premiums taxed in the US?

The IRS generally treats premium received from selling covered calls as short-term capital gain, taxed at ordinary income rates, in the year the position closes. Selling a deep in-the-money call can also suspend the long-term holding period on your underlying shares, which could convert a future long-term gain into a short-term one. Tax rules here are complex, so consult a qualified tax advisor and review IRS Publication 550 for details.

Can I sell covered calls in a Schwab IRA or TFSA?

Yes, Schwab allows covered calls in Traditional and Roth IRAs at the appropriate options approval level, and the premium grows tax-deferred or tax-free depending on the account type. Canadian investors can sell covered calls inside a TFSA or RRSP at most brokers, but the CRA has specific rules about option income in registered accounts, so verify with your broker and a tax professional before trading.