How to Sell a Covered Call on Charles Schwab and thinkorswim: A Step-by-Step Guide

The Short Answer: Here Is How You Do It

You can sell a covered call on Charles Schwab in under two minutes once your account has options approval. On the web platform or mobile app, find your stock position, open the options chain, select a strike and expiration, and place a Sell to Open order. On thinkorswim — Schwab's advanced desktop and mobile platform — the path is nearly identical but gives you more data on screen at once.

This guide walks you through both platforms step by step, shows you a real numbers example using Apple (AAPL), and covers the risks you need to understand before you hit Send.

What You Need Before You Place the Trade

Three things must be in place before you can sell a covered call.

First, you need at least 100 shares of the underlying stock. One standard options contract covers exactly 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.

Second, your account needs options trading approval at Level 1 or Level 2. Covered calls are the most basic options strategy and typically require only Level 1 approval at Schwab. You apply inside your account settings under "Options Trading." Schwab will ask about your investing experience, income, and net worth. FINRA Rule 2360 requires brokers to collect this information before approving options trading, so this step is not optional.

Third, the stock you own must be held in a margin or standard brokerage account. Covered calls inside an IRA are allowed at Schwab, but the rules are slightly more restrictive — confirm your IRA is approved for options before you try.

Selling a Covered Call on the Schwab Web Platform

Log in at schwab.com and go to Trade > Options. You can also navigate directly from your Positions page by clicking on the stock ticker.

Step 1 — Open the options chain. Type the ticker (for example, AAPL) in the trade ticket and select Options. The chain will display available expirations across the top.

Step 2 — Choose an expiration. Most covered-call sellers target 30 to 45 days to expiration (DTE) to capture the steepest part of time decay. Click the expiration date you want.

Step 3 — Select your strike. The chain shows Calls on the left and Puts on the right. Find the strike price you want to sell. Out-of-the-money (OTM) calls sit above the current stock price. At-the-money (ATM) calls sit right at the stock price.

Step 4 — Place the order. Click the Bid price on the call row. Schwab auto-populates a Sell to Open order. Set the quantity (number of contracts), choose a Limit order at or near the mid-price between the bid and ask, and confirm the order details. Click Preview Order, then Send.

Your brokerage confirmation will show the premium credited to your account, usually the same trading day. The OIC (Options Industry Council) notes that premium is credited immediately but the position remains open until expiration or you close it.

Selling a Covered Call on thinkorswim

thinkorswim (ToS) is Schwab's professional-grade platform, available as a desktop download, web app, or mobile app. The extra screens can look intimidating, but the covered-call workflow is straightforward.

Step 1 — Enter the ticker. Type the symbol in the top search bar and press Enter. Click the Trade tab.

Step 2 — Open the options chain. The chain appears automatically. Use the Layout dropdown to add columns like Delta, Bid, Ask, and Open Interest if they are not already visible. Delta is useful here — many traders target a delta of 0.20 to 0.35 for OTM covered calls, meaning the market implies roughly a 20–35% chance the option finishes in the money.

Step 3 — Right-click the Bid on the call row. A context menu appears. Select Sell > Single. ToS opens an order ticket at the bottom of the screen.

Step 4 — Review and send. The ticket shows the order as Sell to Open, the strike, expiration, and the limit price. Adjust the limit price if needed, confirm the quantity, and click Confirm and Send. A final confirmation dialog shows your maximum gain, maximum loss, and breakeven — review these before clicking Send.

On mobile thinkorswim, tap the stock, tap Trade, tap the Calls tab, tap the strike row, and select Sell. The rest mirrors the desktop flow.

Worked Example: Selling a Covered Call on AAPL

Let's say you own 100 shares of Apple (AAPL) and the stock is trading at $213.00.

You decide to sell one contract of the AAPL $220 call expiring in 35 days. The bid is $2.10 and the ask is $2.30. You place a limit order at $2.20 (the mid-price).

If filled, you collect $220.00 in premium (100 shares × $2.20). That premium is yours to keep regardless of what happens next.

Scenario A — AAPL stays below $220 at expiration. The call expires worthless. You keep the $220 premium and still own your 100 shares. Your effective cost basis on the shares drops by $2.20 per share.

Scenario B — AAPL rises above $220 at expiration. Your shares get called away at $220. You receive $22,000 for the shares plus keep the $220 premium, for a total of $22,220. You no longer own the shares. If you bought AAPL at $200, your profit is $2,220 on the position — solid, but you missed any gains above $220.

Scenario C — AAPL drops sharply, say to $195. The call expires worthless and you keep the $220 premium, but your shares are now worth $1,800 less than when you sold the call. The premium cushions the loss but does not eliminate it. This is the core risk of owning stock.

Risks You Should Understand Before You Trade

Covered calls are one of the lower-risk options strategies, but they carry real trade-offs.

Capped upside. Once you sell a call, your profit on the stock is capped at the strike price. If AAPL rockets from $213 to $250, you still sell at $220. You gave up $30 per share of upside in exchange for $2.20 in premium.

Stock loss is not protected. The premium you collect reduces your breakeven slightly, but if the stock falls hard, you lose money on the shares. A covered call is not a hedge against a major decline. FINRA and the SEC both classify covered calls as a relatively conservative strategy, but neither agency considers them risk-free.

Early assignment. American-style options (which includes most single-stock options on US exchanges) can be assigned before expiration. This is rare but more likely when the call is deep in the money or just before an ex-dividend date. If you are assigned early, your shares are sold at the strike price immediately.

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. Selling a call can also affect the holding period of your shares under IRS rules — specifically, if you sell an in-the-money call, the holding period clock on your shares may be suspended. Consult a tax professional. Canadian investors should note that the CRA has its own rules on options income classification; again, professional advice is recommended.

Bid-ask spread cost. Always use a limit order, not a market order. The bid-ask spread on options can be wide, especially on less liquid names. Placing a limit at the mid-price is standard practice and usually gets filled within a few minutes on liquid tickers like AAPL or MSFT.

How to Close the Position Before Expiration

You are not locked in until expiration. To close a covered call early, you Buy to Close the same contract — same ticker, same strike, same expiration. If the stock has not moved much or has dropped, the option will be cheaper than what you sold it for, and you pocket the difference as profit.

On Schwab web, go to your Positions page, find the short call, and click Close. On thinkorswim, right-click the position and select Buy to Close.

Many experienced covered-call traders close the position when they have captured 50–80% of the maximum premium. For example, if you sold the AAPL $220 call for $2.20, you might buy it back for $0.50 after 20 days, locking in $1.70 of the $2.20 and freeing up the shares to sell a new call. This "roll or close early" discipline helps manage risk and keeps the income engine running.

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

Yes. Schwab requires options trading approval before you can place any options order, including covered calls. You apply inside your account settings under Options Trading, and covered calls typically require only Level 1 approval. FINRA Rule 2360 requires all brokers to collect your financial information before granting approval, so the application is mandatory.

Can I sell a covered call in my Schwab IRA?

Yes, Schwab allows covered calls inside IRAs, but you must apply for options approval specifically for that IRA account. The approval process is the same as for a taxable account. Keep in mind that IRS rules on options inside IRAs are complex, so speak with a tax professional before trading.

What is the difference between Schwab's web platform and thinkorswim for covered calls?

Both platforms let you sell covered calls with the same underlying mechanics, but thinkorswim shows more data — delta, open interest, implied volatility — on one screen. The Schwab web platform is simpler and works well for straightforward covered-call orders. Most beginners start on the web platform and move to thinkorswim once they want more analytical tools.

What strike price should I choose when selling a covered call?

Most covered-call sellers choose an out-of-the-money strike 5–10% above the current stock price, which balances premium income against the chance of having shares called away. A delta of 0.20 to 0.35 on the call is a common guideline, meaning the market implies roughly a 20–35% probability the option expires in the money. Your choice depends on how willing you are to sell your shares at that price.

What happens if I sell a covered call and the stock pays a dividend before expiration?

If the call is in the money and an ex-dividend date falls before expiration, there is a higher chance of early assignment because the option buyer may exercise to capture the dividend. If you are assigned early, your shares are sold at the strike price and you will not receive the dividend. Monitor your short calls closely around ex-dividend dates.

How do taxes work when I sell a covered call on a US stock?

The IRS generally treats covered call premiums as short-term capital gains, taxed at ordinary income rates, regardless of how long you have held the underlying stock. Selling an in-the-money call can also suspend the holding period on your shares, which may affect whether gains on the stock qualify as long-term. Always consult a qualified tax professional for your specific situation, and Canadian investors should check CRA guidance on options income classification.