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

The Short Answer: Yes, You Can Do This in About 5 Minutes

To sell a covered call on Fidelity, you need options approval (Level 1 is enough), at least 100 shares of the stock, and a few clicks inside the options chain. Log in, pull up your stock, open the options chain, select a strike and expiration, choose "Sell to Open," and confirm. That's the whole loop.

The rest of this guide walks every step in detail, shows you a real trade with Apple (AAPL), and flags the risks you need to understand before you hit confirm.

Before You Start: What Fidelity Requires

Fidelity splits options trading into approval tiers. Selling covered calls falls under Level 1 — the lowest tier — because you already own the shares that back the obligation. You are not trading naked. FINRA and the SEC both require brokers to verify that customers understand options before granting access, which is why Fidelity asks a few questions about your experience and net worth during the application.

If you have never applied, go to Accounts & Trade → Account Features → Brokerage & Trading → Options. The online form takes about five minutes. Approval is often instant for experienced investors; newer accounts may wait one business day.

You also need a margin or standard brokerage account — covered calls are not permitted inside a Fidelity 401(k). They are allowed inside a Fidelity IRA, but you must specifically request options trading for that account. Canadian readers using a self-directed RRSP or TFSA at a Canadian broker should check CRA guidance on derivatives inside registered accounts, as the rules differ from a US IRA.

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

**Step 1 — Confirm your share position.** Go to Positions and verify you hold at least 100 shares of the stock you want to write against. One options contract covers exactly 100 shares. If you own 250 shares, you can sell a maximum of two contracts without going uncovered.

**Step 2 — Navigate to the options chain.** Search the ticker in the top bar. On the quote page, click the "Options" tab. Fidelity displays a standard chain with calls on the left and puts on the right, sorted by expiration date.

**Step 3 — Choose your expiration.** Most retail covered-call writers target 21–45 days to expiration (DTE). Time decay (theta) accelerates in that window, which benefits the seller. The Options Industry Council (OIC) publishes free educational material confirming this theta curve if you want to dig deeper.

**Step 4 — Pick a strike price.** Click the expiration date to expand the chain. Strikes above the current stock price are out-of-the-money (OTM). A strike at roughly 0.30 delta means the market prices about a 30% chance the call finishes in the money — a common starting point for income-focused sellers who want to keep their shares.

**Step 5 — Enter the order.** Click the Ask price of the call you want to sell. Fidelity auto-populates a ticket with Action set to "Sell to Open" and the contract details filled in. Change the order type to Limit and set your price at or near the mid-point between the bid and ask. For liquid names like AAPL, the bid-ask spread is tight and you will usually get filled at the mid.

**Step 6 — Review and confirm.** Fidelity shows a plain-English order summary: the maximum gain (the premium collected), the maximum loss (offset by the premium, but still substantial — more on that below), and the breakeven price. Read it. Click Confirm and Place Order.

Worked Example: Writing a Covered Call on AAPL

Let's say it's a Tuesday morning and AAPL is trading at $213.50. You own 100 shares. You want to generate income without selling your shares below $220.

**What you do:** Open the options chain, select the expiration 30 days out, and find the $220 strike call. The bid is $2.10 and the ask is $2.20. You place a limit order to Sell to Open 1 contract at $2.15 (the mid). Your order fills.

**What you collect:** $215 in cash (1 contract × 100 shares × $2.15), credited to your account immediately. That is roughly a 1.0% return on the $213.50 share price in 30 days — about 12% annualized if you repeat it monthly, before taxes and commissions.

**Scenario A — AAPL closes at $215 on expiration day.** The $220 call expires worthless. You keep the $215 premium and all 100 shares. You can sell another call next month.

**Scenario B — AAPL closes at $225 on expiration day.** The call is in the money. Fidelity will almost certainly auto-assign your shares at $220. You sell 100 shares at $220 plus keep the $215 premium, for an effective exit price of $222.15. You miss the move from $220 to $225 — that $285 of upside is the opportunity cost of writing the call.

**Scenario C — AAPL drops to $195.** The call expires worthless and you keep the $215 premium, but your shares are now worth $1,850 less than when you sold the call. The premium cushions the loss slightly but does not protect you from a large decline. This is the core risk of the strategy.

What Are the Real Risks Here?

Covered calls are one of the more conservative options strategies, but "conservative" is relative. Here are the three risks that actually hurt retail traders.

**Downside risk is not eliminated.** You still own the stock. If AAPL falls 20%, the $215 premium you collected barely dents the loss. The covered call reduces your cost basis slightly; it does not hedge you. FINRA's investor education materials make this point explicitly — the strategy is income-oriented, not protective.

**Capped upside.** If the stock rips past your strike before expiration, you will be assigned and miss the gain above the strike. Many traders accept this trade-off. Others find it frustrating when a stock they believe in gets called away during a rally.

**Early assignment.** American-style options (which is what you are selling on US stocks) can be exercised by the buyer at any time before expiration. Early assignment is uncommon but happens most often when a call goes deep in the money or just before an ex-dividend date. If you are assigned early, Fidelity will sell your shares at the strike price. Check the dividend calendar before you sell a call that spans an ex-dividend date.

One more thing: if you sell a covered call and then sell the underlying shares before expiration, the call becomes uncovered (naked). Fidelity will flag this and may close the position for you. Do not leg out of one side without a plan for the other.

Tax Treatment: What the IRS Says About Covered Call Premiums

Premium you collect from selling a covered call is not taxed when you receive it. It is taxed when the position closes — either at expiration (the call expires worthless) or at assignment (your shares are called away).

The IRS treats covered call premiums as short-term capital gains in most cases, regardless of how long you have held the underlying stock. There is an important wrinkle: writing a call that is "in the money" or "qualified" can suspend the holding period on your shares under IRS rules for qualified covered calls (see IRS Publication 550). If you are trying to preserve long-term capital gains treatment on shares you have held for nearly a year, talk to a tax professional before selling a deep or at-the-money call. The OIC also covers this topic in its tax guide for options traders.

Canadian investors selling covered calls in a non-registered account generally report the premium as a capital gain in the year the option expires or is exercised, per CRA guidance. Writing calls inside a TFSA can trigger business income treatment if the CRA views the activity as frequent trading — another reason to consult a tax advisor.

Quick Tips for Getting Better Fills on Fidelity

Fidelity routes options orders through multiple exchanges and uses its Best Execution policy, but you can still improve your fills with a few habits.

Always use a limit order, never a market order. Options spreads can be wide on less-liquid names, and a market order will fill at the ask — the worst price for a seller.

Trade during the middle of the day. The first and last 30 minutes of the session tend to have wider spreads and more erratic pricing. Placing your order between 10:30 a.m. and 3:00 p.m. Eastern usually gets you tighter markets.

Stick to liquid underlyings. AAPL, MSFT, NVDA, and SPY all have penny-wide spreads on near-the-money strikes. Thinly traded stocks can have $0.50 or wider spreads, which eats directly into your premium income.

Check open interest before you sell. A strike with open interest above 500 contracts is generally liquid enough for retail size (1–10 contracts). Below 100, you may struggle to get filled at a fair price.

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

You need Level 1 options approval, which is the entry-level tier Fidelity offers. Because you own the underlying shares, the position is considered covered and carries lower risk than naked options strategies. You can apply directly through the Account Features section of your Fidelity account.

Can I sell covered calls in my Fidelity IRA?

Yes, Fidelity allows covered calls inside a traditional or Roth IRA, but you must apply for options trading specifically on that account. The IRS does not prohibit covered calls in IRAs, though the tax-deferred or tax-free nature of the account changes how premiums are treated. Make sure your IRA has enough shares to cover the contract before placing the order.

How do I avoid getting my shares called away?

Sell out-of-the-money calls with a strike price above your target exit price, and choose expirations short enough that you can react if the stock moves sharply. If the call goes deep in the money before expiration, you can buy it back (Buy to Close) at a loss to avoid assignment, then reassess. There is no guaranteed way to collect premium and guarantee you keep the shares — that trade-off is built into the strategy.

What happens if I only own 50 shares — can I still sell a covered call?

No. One standard options contract represents 100 shares, so you need at least 100 shares to sell one covered call. If you sell a call without owning the shares, it becomes a naked call, which requires a higher options approval level and carries unlimited theoretical risk.

How soon does the premium show up in my Fidelity account?

The premium is credited to your account on the next business day after the trade date (T+1 settlement for options as of 2024 under SEC rules). You will see it reflected in your cash balance almost immediately after the fill, though it settles officially the following business day.

Is selling covered calls on Fidelity worth it for small accounts?

It can be, but commissions and the bid-ask spread matter more when you are trading one or two contracts. Fidelity charges $0.65 per contract, so on a single contract generating $200 in premium, the commission is less than 0.5% of the trade. Focus on liquid stocks with tight spreads and premiums high enough that transaction costs do not consume a meaningful slice of your income.