How to Sell Covered Calls on tastytrade: A Step-by-Step Tutorial for New Options Traders

The Short Answer: Yes, You Can Sell Covered Calls on tastytrade in Under 5 Minutes

Selling a covered call on tastytrade means you own at least 100 shares of a stock and you sell someone else the right to buy those shares at a set price before a set date. In return, you collect a cash premium upfront. tastytrade's platform is built specifically for options traders, so the workflow is faster and more visual than most retail brokers — but you still need to understand what you're doing before you place your first trade.

This tutorial walks you through account setup, options approval, the actual order entry screen, a real numerical example using Apple (AAPL), and the risks you need to know before you sell a single contract.

Setting Up Your tastytrade Account for Options Trading

Before you can sell covered calls, tastytrade has to approve you for options trading. This is not optional — FINRA Rule 2360 requires brokers to collect information about your financial situation and options experience before granting access. tastytrade uses a tiered approval system.

To sell covered calls you need at least Tier 1 approval (sometimes labeled 'Covered Calls' or 'Level 1'). During the application you'll answer questions about your net worth, annual income, investment experience, and risk tolerance. Be honest. Overstating your experience to get a higher tier can create problems if a trade goes wrong and you need broker support.

Once approved, fund your account. tastytrade has no minimum deposit requirement as of this writing, but you need enough cash or margin to hold 100 shares of whatever stock you plan to write calls against. If you already hold shares at another broker, you can transfer them via ACATS — tastytrade supports this and it typically takes 3-5 business days.

How the tastytrade Options Chain Actually Works

Search for your stock using the magnifying glass at the top of the screen. Click the stock name to open its trade page, then click 'Trade' and select 'Options Chain.' You'll see a grid with expiration dates across the top and strike prices down the middle. Calls are on the left side of the chain; puts are on the right.

The columns you care about most when selling covered calls are:

- **Bid / Ask**: The bid is what buyers will pay you right now. When you sell a call, you typically get filled near the bid price. - **Delta**: Measures how much the option's price moves for every $1 move in the stock. A delta of 0.30 means the option moves about $0.30 for each $1 the stock moves. Lower delta = further out-of-the-money = lower premium but lower chance of assignment. - **Implied Volatility (IV)**: Higher IV means fatter premiums. tastytrade color-codes IV rank so you can see at a glance whether options are cheap or expensive relative to their history. - **Days to Expiration (DTE)**: tastytrade highlights the 45-DTE expiration in orange. Many experienced covered-call sellers target the 30-45 DTE window because time decay (theta) accelerates meaningfully in that range.

You can toggle between weekly and monthly expirations using the tabs at the top of the chain.

A Real Worked Example: Selling a Covered Call on AAPL

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

You open the options chain and look at the expiration 35 days out. You find the $220 strike call:

- Bid: $2.85 - Ask: $2.95 - Delta: 0.28 - IV Rank: 42 (moderate — not screaming cheap or expensive)

You decide to sell 1 contract (which covers your 100 shares) at the $2.85 bid. Here's what that means in dollars:

- **Premium collected**: $2.85 × 100 = $285 cash, deposited into your account immediately - **Your effective sell price if assigned**: $220.00 + $2.85 = $222.85 per share - **Breakeven to the downside**: $213.50 − $2.85 = $210.65 (the premium cushions a small drop) - **Maximum gain on the position**: ($220 − $213.50) × 100 + $285 = $650 + $285 = $935 - **Annualized yield on the premium alone**: ($285 / $21,350) × (365 / 35) ≈ 11.1%

To place the order in tastytrade: click the bid price on the $220 call row. A ticket opens pre-filled as a 'Sell to Open' order for 1 contract. Confirm the order type is 'Limit' at $2.85 (or adjust to your target price). Review the buying power effect — for a covered call it should show a small reduction, not a large margin requirement, because your shares serve as collateral. Hit 'Review Order,' then 'Send Order.'

You'll see the position appear in your portfolio under 'Positions' with a short call shown in red (short positions are always red on tastytrade). The $285 credit shows up in your cash balance right away.

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

Covered calls are considered one of the most conservative options strategies — the Options Industry Council (OIC) classifies them as a 'risk-reducing' strategy because the premium offsets some downside. But conservative does not mean risk-free. Here are the three risks that catch new traders off guard.

**Risk 1 — You cap your upside.** If AAPL jumps from $213.50 to $235 before expiration, you still sell at $220 (plus keep the $285 premium). You miss $1,500 in gains above $220. This is called opportunity cost, and it's the main trade-off of selling covered calls.

**Risk 2 — The stock can still fall hard.** Your $285 premium only protects you down to $210.65. If AAPL drops to $190, you lose $2,350 on the shares minus the $285 premium — a net loss of $2,065. The call expires worthless and you keep the premium, but the stock loss dwarfs it. Covered calls do not protect against a large decline.

**Risk 3 — Early assignment.** American-style equity options (which is what you're trading on tastytrade) can be exercised at any time before expiration. If AAPL spikes and your call goes deep in-the-money, the buyer might exercise early, especially around ex-dividend dates. tastytrade will notify you if your shares are called away, and the transaction settles in two business days. You keep the premium plus any gain up to the strike, but you no longer own the shares.

The SEC's Office of Investor Education and Advocacy recommends that all options traders read the 'Characteristics and Risks of Standardized Options' disclosure document (also called the ODD) before trading. tastytrade provides this during account opening.

Managing the Trade After You're In

tastytrade's 'Positions' tab shows your covered call's current profit or loss in real time. The platform also has a built-in 'P/L Day' and 'P/L Open' column so you can track how the short call is performing.

Two management moves you should know:

**Rolling the call**: If the stock rises toward your strike and you don't want to be assigned, you can 'roll' the call — buy back the current call and sell a new one at a higher strike or later expiration. In tastytrade, right-click the position and select 'Roll.' The platform builds the spread order automatically. Rolling is not free; you're buying back the call at a higher price than you sold it, so you'll pay a debit or collect a smaller net credit.

**Buying back early to close**: tastytrade's own research suggests closing short options when you've captured 50% of the maximum profit (i.e., the call you sold for $2.85 is now worth $1.43 or less). This frees up capital for the next trade and removes the risk of a late-expiration reversal. To close, right-click the position and select 'Close.' The platform generates a 'Buy to Close' order.

Do not let covered calls expire in-the-money if you don't want to sell your shares. Assignment is automatic at expiration for in-the-money options.

Tax Treatment: What US and Canadian Traders Need to Know

**US traders**: The IRS treats covered call premiums as short-term capital gains in most cases, regardless of how long you've held the underlying stock. There's an important wrinkle: if you sell a call that is 'in-the-money' or 'qualified covered call' rules are not met, the IRS may suspend the holding period on your shares for long-term capital gains purposes. IRS Publication 550 covers this in detail. If you're close to the one-year mark on your shares, talk to a tax professional before selling a deep in-the-money call.

**Canadian traders**: The Canada Revenue Agency (CRA) treats option premiums received as either income or capital gains depending on whether you're considered a trader or an investor. Most buy-and-hold investors who occasionally sell covered calls are treated as capital gains. However, if you sell calls frequently and systematically, the CRA may classify the activity as business income, which is taxed at your full marginal rate. CRA Interpretation Bulletin IT-479R addresses securities transactions. When in doubt, consult a Canadian tax advisor.

tastytrade issues a 1099 form (for US accounts) each year summarizing your options activity. Keep records of every premium collected and every closing transaction.

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

No. You can sell covered calls in a cash account as long as you own the 100 shares that back each contract. A margin account is required only if you want to sell naked calls or use leverage to buy the shares. tastytrade supports both cash and margin accounts for covered call writing.

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

You need Tier 1 (sometimes shown as 'Covered Calls' or 'Level 1') on tastytrade. This is the entry-level approval and is typically granted to most applicants who demonstrate basic investing experience. FINRA Rule 2360 requires tastytrade to collect this information before granting any options access.

How much premium can I realistically collect selling covered calls each month?

It depends on the stock's implied volatility and how close to the money you sell. On a stock like AAPL with moderate IV, a 30-delta call 35 days out might yield 1-2% of the stock's value per month. Higher-volatility stocks pay more premium but carry more assignment risk and larger potential stock losses.

What happens if my covered call expires in the money on tastytrade?

Your 100 shares will be automatically called away (assigned) at the strike price, and the transaction settles two business days later. You keep the premium you collected plus any gain from your cost basis up to the strike price. tastytrade will send you a notification and the shares will disappear from your portfolio.

Can I sell covered calls in a tastytrade IRA?

Yes. tastytrade supports covered call writing in Traditional and Roth IRA accounts. Because IRAs are tax-advantaged, the premium income is either tax-deferred or tax-free depending on the account type, which can make covered calls especially efficient inside an IRA. Check IRS Publication 590-A and 590-B for IRA contribution and distribution rules.

Is tastytrade good for beginners selling covered calls, or should I start somewhere else?

tastytrade is well-suited for covered call beginners because its options chain is clean, the order ticket pre-fills most fields, and the platform shows your buying power effect before you confirm. The main learning curve is understanding the Greeks displayed on screen, particularly delta and theta. The Options Industry Council (OIC) offers free courses at optionseducation.org that pair well with tastytrade's own video library.