How to Sell a Covered Call on Charles Schwab's thinkorswim Platform: Step-by-Step Guide

The Short Answer: Here Is How You Do It

To sell a covered call on Charles Schwab's thinkorswim platform, open the Trade tab, search your ticker, click the options chain, right-click the call strike you want, and select "Sell" then "Single." Confirm the order in the order entry panel and send it. That is the whole flow — the sections below walk through each step with real numbers so nothing surprises you.

What You Need Before You Place the First Trade

Three things must be in place before thinkorswim will let you sell a covered call.

First, you need to own at least 100 shares of the underlying stock. One covered call contract controls exactly 100 shares. If you own 250 shares of Apple (AAPL), you can sell a maximum of two contracts and still be fully covered.

Second, your account needs options approval at Tier 1 (sometimes called Level 1 at other brokers). Schwab calls this "Covered Calls" approval. You apply inside the account settings under "Options." FINRA Rule 2360 requires brokers to verify that options trading is suitable for you before granting access, so expect a short questionnaire about your experience and net worth.

Third, you need thinkorswim downloaded or open in a browser. Schwab merged the old TD Ameritrade thinkorswim platform into its own ecosystem after the 2020 acquisition. As of 2024, thinkorswim is available as a desktop download, a web version at schwab.com, and a mobile app. The steps below use the desktop version, which has the most screen real estate for reading an options chain.

Navigating to the Options Chain in thinkorswim

Open thinkorswim and click the "Trade" tab at the top of the screen. In the symbol box near the upper left, type your ticker — we will use AAPL throughout this guide — and press Enter.

Below the stock quote you will see a row of tabs: Stock, Options, Futures, and Forex. Click "Options." The options chain loads with calls on the left side and puts on the right side, organized by expiration date.

By default, thinkorswim shows the nearest expiration at the top. Click the small arrow next to an expiration date to expand that row and see all available strikes. The columns you care most about right now are:

- **Bid / Ask** — the range of prices other traders are willing to pay or accept for that option. - **Delta** — how much the option price moves per $1 move in the stock. A delta of 0.30 means the option moves about $0.30 for every $1 the stock rises. - **Open Interest** — the number of existing contracts. Higher open interest generally means a tighter bid-ask spread and easier fills.

The Options Industry Council (OIC) publishes free educational material explaining each of these columns if you want a deeper reference.

Placing the Trade: A Real AAPL Worked Example

Let us say it is a Tuesday morning and AAPL is trading at $213.50. You own 100 shares and want to generate income by selling one covered call expiring in about 30 days.

**Choosing the strike.** A common starting point for income-focused sellers is a strike with a delta between 0.20 and 0.35. That range sits out-of-the-money (OTM) enough to give the stock room to move without immediately threatening assignment, while still paying a meaningful premium. Scanning the chain, you see the $220 strike expiring in 32 days shows a delta of 0.28, a bid of $2.15, and an ask of $2.25.

**Entering the order.** Right-click on the $2.15 bid price in the AAPL $220 call row. A context menu appears. Select "Sell" then "Single." The order entry panel opens at the bottom of the screen. It pre-fills: - Action: Sell to Open - Quantity: 1 contract - Strike: 220 - Expiration: the date you clicked - Order type: Limit - Limit price: $2.15 (the bid)

**Adjusting the limit price.** You do not have to accept the bid. Try splitting the spread: type $2.20 in the limit price box. You are asking for $0.05 more per share, which is $5 extra on the contract. In liquid names like AAPL, mid-price fills are common during regular market hours.

**Reviewing and sending.** Click "Confirm and Send." A summary screen shows your maximum gain, maximum loss, and the breakeven price. Read it. If everything looks right, click "Send."

**What you just collected.** If filled at $2.20, you receive $220 in premium (100 shares × $2.20) credited to your account immediately. That $220 is yours to keep no matter what happens next. Your effective cost basis on AAPL drops from $213.50 to $211.30 per share.

Risks You Need to Understand Before Selling Any Call

Covered calls are considered one of the lower-risk options strategies, but lower-risk does not mean risk-free. Here are the three risks that matter most.

**Capped upside.** If AAPL rockets from $213.50 to $235 before expiration, your shares get called away at $220. You miss the gain above $220. The $220 premium you collected does not come close to covering that missed profit. This is the real cost of selling covered calls — you trade upside for immediate income.

**Stock still falls.** The $220 premium only protects you down to a breakeven of $211.30. If AAPL drops to $190, you lose $21.30 per share on the stock position, and the $2.20 premium barely dents that. Covered calls do not hedge a large decline. FINRA and the SEC both classify covered call writing as a strategy that still carries substantial downside stock risk.

**Early assignment.** American-style equity options (which is what you are trading on AAPL) can be assigned at any time before expiration, not just on the last day. This is rare but it happens, most often when the option is deep in-the-money or just before an ex-dividend date. If you are assigned early, your 100 shares are sold at the strike price. The OIC has a detailed explainer on early assignment risk that is worth reading before your first trade.

**Tax treatment.** In the United States, the IRS treats premiums from covered calls as short-term capital gains in most situations, regardless of how long you have held the stock. Selling a call can also suspend the holding period on your shares under certain conditions, which matters if you are trying to qualify for long-term capital gains rates. Consult a tax professional and review IRS Publication 550 before year-end. Canadian investors should check CRA guidance, as the tax treatment of options premiums differs under Canadian income tax rules.

Managing the Position After the Trade Is On

Once your covered call is live, you have three possible outcomes at expiration.

**The option expires worthless.** AAPL stays below $220. The call expires with no value. You keep the $220 premium and all 100 shares. You are free to sell another call for the next cycle. This is the outcome most covered call sellers are aiming for.

**The option is in-the-money at expiration.** AAPL closes above $220. Your shares are automatically called away at $220. You keep the premium plus the gain from $213.50 to $220 — a total of $870 on this trade ($650 stock gain + $220 premium). You no longer own the shares.

**You decide to close early.** If AAPL drops sharply and the call loses most of its value — say it falls to $0.30 — you can buy it back for $30 and close the position. You lock in $190 of the original $220 premium and free up the shares to sell a new call at a lower strike. In thinkorswim, go back to the options chain, right-click the same strike, and select "Buy to Close."

To monitor your open position, click the "Monitor" tab at the top of thinkorswim, then "Activity and Positions." Your short call appears there with live profit and loss.

Quick Tips to Avoid Common Beginner Mistakes

A few practical habits separate traders who do well with covered calls from those who get burned early.

**Always verify you own enough shares first.** Selling a call without the underlying shares turns it into a naked call — a completely different and far riskier strategy. thinkorswim will usually block this if your account is only approved for covered calls, but double-check before you hit Send.

**Avoid selling calls through earnings.** If AAPL reports earnings during your option's life, implied volatility will spike before the report and collapse after. A big earnings beat can send the stock well past your strike overnight. Many experienced sellers skip the cycle that covers an earnings date or choose a strike far enough OTM to absorb a surprise move.

**Use limit orders, not market orders.** Options spreads can be wide, especially in less liquid names. A market order on an option can fill at a terrible price. Always use a limit order and start at the midpoint of the bid-ask spread.

**Keep a trade log.** Write down your entry price, the stock price at entry, the strike, expiration, and your reason for choosing that strike. Reviewing your log after 10 or 20 trades is the fastest way to improve your strike selection and timing.

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

Yes. Schwab requires Tier 1 options approval, which covers covered call writing. You apply through the account settings under the Options section and answer a short suitability questionnaire. FINRA Rule 2360 requires all brokers to complete this approval process before allowing options trading.

What happens if my covered call gets assigned before expiration?

Early assignment means your 100 shares are sold at the strike price before the expiration date. You keep the premium you collected, but you no longer own the shares. Early assignment is most likely when the call is deep in-the-money or just before an ex-dividend date on the underlying stock.

How do I close a covered call position early on thinkorswim?

Go to the Trade tab, pull up the same options chain, right-click the call you sold, and select Buy to Close. Enter a limit price and send the order. Once filled, your obligation is gone and you are free to sell a new call or simply hold the shares.

How much premium can I realistically expect to collect selling covered calls?

Premium depends on the stock's implied volatility, how far out-of-the-money your strike is, and how many days remain until expiration. On a liquid stock like AAPL, a 30-day call at a delta of 0.25 to 0.30 might pay roughly 1% to 2% of the stock price in premium. Higher-volatility stocks pay more but also carry more risk of a large price swing.

Are covered call premiums taxed as ordinary income or capital gains in the US?

The IRS generally treats premiums from covered calls as short-term capital gains, not ordinary income. However, selling a call can also suspend the holding period on your shares under IRS rules, which could affect whether gains on the stock qualify for long-term rates. Review IRS Publication 550 and consult a tax professional for your specific situation.

Can I sell a covered call on thinkorswim mobile, or do I need the desktop app?

Yes, thinkorswim mobile supports covered call orders. Tap the search bar, enter your ticker, navigate to the options chain, tap the strike price you want, and select Sell to Open. The desktop version gives you more data columns at once, but the mobile app works fine for straightforward single-leg covered call orders.