How to Sell a Covered Call on thinkorswim: Step-by-Step Guide

The Short Answer: Here Is Exactly How to Do It

To sell a covered call on thinkorswim, open the Trade tab, pull up your stock's options chain, right-click the bid price on your chosen call strike, and select 'Sell.' The platform will auto-populate a single-leg order ticket. Confirm you own at least 100 shares of the underlying stock, set your price, and send the order. That is the whole process — the sections below walk through every click in detail.

What You Need Before You Place the Trade

Three things must be in place before you touch the options chain.

First, you need to own at least 100 shares of the stock you plan to write calls against. One standard options contract covers exactly 100 shares. If you own 250 shares of Apple (AAPL), you can sell a maximum of two covered calls at once — the third contract would be uncovered, which is a naked call and requires a different margin approval level.

Second, your thinkorswim account must be approved for options trading at Level 1 or higher. Covered calls are the most basic options strategy and are approved at Level 1 at most brokers. If you have not applied yet, log in to your Schwab account (thinkorswim is now part of Charles Schwab following the TD Ameritrade merger), go to Account Features, and apply for options trading. FINRA Rule 2360 requires brokers to collect information about your experience and financial situation before granting options approval.

Third, make sure you are trading in a margin or standard brokerage account. Covered calls are permitted in IRAs at many brokers, but the approval process can differ. Check your account type before proceeding.

Step-by-Step: Placing the Trade on thinkorswim

The steps below use a real example. Assume AAPL is trading at $213.50 and you own 100 shares. You want to sell one call expiring in 30 days at the $220 strike to collect premium.

**Step 1 — Open the Trade tab.** At the top of thinkorswim, click the 'Trade' tab. In the symbol box, type AAPL and press Enter. The main quote and chart will load.

**Step 2 — Open the options chain.** Just below the chart, you will see an 'Options Chain' section. If it is collapsed, click the arrow to expand it. You will see calls on the left side and puts on the right, organized by expiration date.

**Step 3 — Select your expiration.** Click the expiration date that is roughly 25 to 45 days out. For this example, choose the monthly expiration about 30 days away. The row will expand to show all available strikes.

**Step 4 — Find the $220 strike.** Scroll down the call side until you see the 220 row. You will see columns for Bid, Ask, Delta, Open Interest, and Volume. The Bid for the AAPL 220 call might show $2.85 and the Ask at $2.95. The midpoint is $2.90.

**Step 5 — Right-click the Bid price.** Right-click directly on the $2.85 Bid cell. A context menu appears. Select 'Sell' and then 'Single.' This opens the order ticket at the bottom of the screen.

**Step 6 — Review the order ticket.** The ticket will show: Sell to Open, 1 contract, AAPL 220 Call, your chosen expiration. The order type defaults to Limit. Change the limit price to the midpoint ($2.90) or slightly below the ask to improve your fill. Quantity should be 1.

**Step 7 — Set order duration.** Choose 'Day' if you want the order to expire at market close, or 'GTC' (Good Till Cancelled) if you are willing to wait for a fill over multiple days.

**Step 8 — Confirm and send.** Click 'Confirm and Send.' A summary screen shows your maximum gain, maximum loss, and the premium you will collect. Review it, then click 'Send Order.'

If filled at $2.90, you collect $290 in premium (100 shares × $2.90). That is yours to keep regardless of what happens next.

What the Numbers Actually Mean for This Trade

Let's break down the AAPL $220 covered call example so the math is clear.

You bought AAPL at some earlier price. For this example, say your cost basis is $200 per share. AAPL is now at $213.50.

- **Premium collected:** $290 (the $2.90 × 100 shares) - **Maximum gain:** If AAPL closes at or above $220 at expiration, your shares get called away at $220. You earn $20 per share in stock appreciation ($213.50 to $220) plus the $2.90 premium, for a total of $22.90 per share, or $2,290 on 100 shares. - **Breakeven on the downside:** Your new effective cost basis drops from $200 to $197.10 ($200 minus the $2.90 premium). The premium gives you a small cushion against a price drop. - **Delta context:** The $220 strike at 30 days out will likely carry a delta around 0.30, meaning the market is pricing roughly a 30% chance the stock closes above $220 at expiration. The Options Industry Council (OIC) explains delta as a probability proxy in its free educational materials.

If AAPL stays below $220 at expiration, the call expires worthless, you keep the $290, and you still own your 100 shares. You can then sell another call for the next month.

What Are the Real Risks You Are Taking On?

Covered calls are considered a conservative options strategy, but they carry real risks that deserve honest attention — not a footnote.

**Capped upside.** If AAPL jumps from $213.50 to $240 before expiration, you still sell at $220. You miss $20 per share of gains above your strike. The premium you collected does not come close to covering that missed appreciation. This is the most common frustration for covered call writers.

**Assignment risk.** The buyer of your call can exercise it at any time before expiration (American-style options). Early assignment is rare but happens most often just before an ex-dividend date. If your shares get called away early, you may miss the dividend. The OIC notes that early exercise is most likely when the option has little time value remaining.

**Stock still falls.** Selling a call does not protect you from a major drop. If AAPL falls from $213.50 to $185, your $2.90 premium offsets only a small portion of the $28.50 loss. You still own the stock and absorb the full downside below your breakeven of $197.10.

**Liquidity risk.** Stick to high-volume stocks and options. AAPL, MSFT, NVDA, and SPY all have tight bid-ask spreads. Thinly traded options can have wide spreads that eat into your premium before you even start.

**Tax treatment.** In the US, the IRS treats covered call premiums as short-term capital gains in most cases, regardless of how long you have held the stock. Writing a call can also affect the holding period of your shares under IRS qualified covered call rules. In Canada, the CRA has its own rules on option premiums — they may be treated as capital gains or income depending on your trading frequency. Consult a tax professional for your specific situation.

How to Manage or Close the Position Before Expiration

You do not have to hold a covered call until expiration. Many traders close or roll the position early.

**Buying back the call.** To close the position, go back to the options chain, find your open call, right-click the Ask price, and select 'Buy to Close.' If AAPL dropped to $205 and the call is now worth $0.60, you buy it back for $60 and keep $230 of your original $290 premium. You free up your shares to sell another call.

**Rolling the call.** Rolling means buying back the current call and simultaneously selling a new one at a later expiration or higher strike. On thinkorswim, you can do this as a single spread order to reduce execution risk. Go to your Positions tab, right-click the open call, and select 'Roll.' The platform will suggest a roll order automatically.

**The 50% rule.** A common rule of thumb among covered call writers is to buy back the call when it has lost 50% of its value. If you sold for $2.90 and it drops to $1.45, close it and redeploy. This locks in most of your gain and removes assignment risk for the rest of the cycle. This is a guideline, not a guarantee of better outcomes.

Common Mistakes New Covered Call Writers Make on thinkorswim

A few errors show up repeatedly among traders new to this strategy.

**Selling too close to earnings.** Implied volatility spikes before earnings announcements, which inflates option premiums. That looks attractive, but the stock can move violently after the report. If you sell a call the week before earnings and the stock gaps down 15%, your small premium does not help much. Check the earnings calendar in thinkorswim under the 'Calendar' tab before entering any position.

**Choosing the wrong expiration.** Very short expirations (under 7 days) carry high gamma risk — small stock moves create large swings in option value. Very long expirations (over 60 days) tie up your shares for a long time. The 21-to-45-day window is widely cited as the sweet spot for premium decay, as theta (time decay) accelerates in this range.

**Ignoring open interest.** Low open interest means few other traders are active at that strike. You may struggle to get a fair fill or close the position later. On thinkorswim, always check that open interest is at least several hundred contracts before selling.

**Selling calls on stocks you do not want to hold.** If you would be upset losing the stock at the strike price, reconsider the trade. Assignment is always a possibility. Only sell covered calls on stocks you are comfortable owning through expiration.

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

Yes, you need options trading approval on your Schwab/thinkorswim account. Covered calls are a Level 1 options strategy, the most basic level available. You apply through Account Features on the Schwab website, and FINRA rules require the broker to assess your experience and financial situation before granting approval.

Can I sell a covered call in my IRA on thinkorswim?

Yes, Schwab allows covered calls in IRA accounts at thinkorswim, but you must apply for options trading within the IRA separately from your taxable account. Covered calls are one of the few options strategies permitted in retirement accounts because they do not require margin borrowing. Check with Schwab directly to confirm your specific IRA type qualifies.

What happens if my covered call gets assigned early?

Early assignment means the call buyer exercised their right to buy your 100 shares before expiration. Your shares are sold at the strike price and the premium you collected is yours to keep. Early assignment is uncommon but most likely just before an ex-dividend date, as the OIC notes this is when exercising early can make financial sense for the buyer.

How do I pick the right strike price for a covered call?

Most covered call writers target a strike that is 3% to 7% above the current stock price with 30 to 45 days to expiration, which typically corresponds to a delta between 0.20 and 0.35. A lower delta means a smaller premium but a lower chance of losing your shares. The right strike depends on how much upside you are willing to give up versus how much income you want to generate.

How are covered call premiums taxed in the US?

The IRS generally treats covered call premiums as short-term capital gains, taxed at ordinary income rates, in the year the position closes. Writing a call can also suspend or reset the holding period of your underlying shares under IRS qualified covered call rules, which matters if you are trying to qualify for long-term capital gains treatment on the stock. Consult a tax professional for advice specific to your situation.

What is the difference between 'Sell to Open' and 'Sell to Close' on thinkorswim?

'Sell to Open' creates a new short options position — this is what you use when you first sell a covered call. 'Sell to Close' would close an existing long options position you already own. When selling a covered call for the first time, always confirm the order ticket shows 'Sell to Open' so you are not accidentally closing a different trade.