How to Sell Covered Calls on Robinhood: A Beginner's Step-by-Step Guide

The Short Answer: Yes, You Can Sell Covered Calls on Robinhood

You can sell covered calls on Robinhood as long as you own at least 100 shares of the underlying stock and your account is approved for options trading at Level 2 or higher. The process takes about five minutes once your account is set up. This guide walks you through every step, shows you a real trade example using Apple (AAPL), and flags the risks you need to understand before you place your first order.

What Is a Covered Call and Why Do Beginners Use It?

A covered call is a two-part position. You already own 100 shares of a stock. You then sell someone else the right to buy those shares from you at a fixed price — the strike price — before a set date — the expiration. In exchange, you collect a cash payment called the premium. That premium is yours to keep no matter what happens next.

Beginners like covered calls because the risk profile is straightforward. You are not buying options and hoping for a big move. You are selling them and getting paid while you wait. The Options Industry Council (OIC) describes the covered call as one of the most conservative options strategies available to individual investors, because your stock position already 'covers' the obligation you are taking on.

The trade-off is that you cap your upside. If the stock rockets past your strike price, you still sell at the strike and miss the extra gain. That is the core compromise every covered-call seller makes.

How to Get Options Approval on Robinhood

Robinhood requires you to apply for options trading before you can place any options order. Here is how to do it:

1. Open the Robinhood app and tap the Account icon in the bottom right corner. 2. Go to Investing, then Options. 3. Tap Enable Options and answer the questionnaire about your trading experience, income, and investment goals. 4. Robinhood will approve you for Level 2 options access if your answers meet their criteria. Level 2 is the tier that allows selling covered calls.

FINRA rules require brokers to collect this information before granting options access. Robinhood is no different. If you are denied, you can reapply after 30 days or after updating your profile to reflect more experience. You do not need Level 3 or margin approval to sell covered calls — Level 2 is enough.

Step-by-Step: Placing Your First Covered Call Trade

Before you start, confirm you own at least 100 shares of the stock you want to write calls against. One options contract always represents 100 shares.

Step 1 — Find the stock. Search for your ticker in the Robinhood app. Tap the stock to open its detail page.

Step 2 — Open the options chain. Scroll down and tap Trade, then Trade Options.

Step 3 — Select Sell and Call. On the options screen, choose Sell at the top, then make sure Call is selected (not Put).

Step 4 — Pick an expiration date. Robinhood shows weekly and monthly expirations. Most beginners start with 30-day expirations to balance premium size against time commitment.

Step 5 — Choose a strike price. Tap a strike price from the chain. Out-of-the-money strikes (above the current stock price) are the most common starting point for covered-call sellers who want to keep their shares.

Step 6 — Review the premium. The bid price shown is roughly what you will collect per share. Multiply by 100 to get your total cash received.

Step 7 — Set order type and confirm. Use a limit order set at or near the bid-ask midpoint. Tap Review, then Submit.

Robinhood will automatically flag the order as covered because it can see you hold the shares in the same account. You will not be required to post additional margin.

A Real Worked Example Using AAPL

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

You decide to sell one covered call with a $220 strike expiring in 30 days. The option chain shows a bid of $1.85 and an ask of $1.95. You place a limit order at $1.90 — the midpoint — and it fills.

You collect $190 in premium (100 shares × $1.90). That money lands in your account immediately.

Now there are two possible outcomes at expiration:

Outcome A — AAPL stays below $220. The call expires worthless. You keep your 100 shares and the full $190 premium. Your effective cost basis on the shares dropped by $1.90 per share.

Outcome B — AAPL closes above $220 at expiration. Your shares get called away at $220. You receive $22,000 for the shares plus you already kept the $190 premium. Your total proceeds are $22,190. The downside: if AAPL ran to $230, you missed $1,000 in gains above the strike.

The $220 strike is about 3% out of the money. The delta on this call is roughly 0.28, meaning the market prices in about a 28% chance of assignment. That is a useful gut-check number when picking strikes.

What Are the Real Risks? Read This Before You Trade

Covered calls are not risk-free. Here are the three risks that catch beginners off guard.

Risk 1 — Assignment. If the stock closes above your strike at expiration, Robinhood will automatically sell your shares at the strike price. This is called assignment. You cannot stop it once the option is in the money at expiration. If you did not want to sell your shares, you need to buy back the call before expiration — and that costs money.

Risk 2 — Early assignment. American-style options (which is what Robinhood trades) can be exercised by the buyer at any time before expiration, not just on the last day. Early assignment is rare but it does happen, especially around ex-dividend dates. The OIC notes that early exercise is most likely when the option is deep in the money and the stock is about to pay a dividend.

Risk 3 — The stock drops hard. The premium you collected is small compared to a large stock decline. If AAPL drops from $213.50 to $185, your $190 premium barely dents a $2,850 paper loss. Covered calls reduce your cost basis slightly — they do not protect you from a serious downturn. FINRA reminds investors that covered calls do not provide downside protection beyond the premium received.

Always ask yourself: am I comfortable owning these shares at a lower price? If the answer is no, a covered call is not the right move.

Tax Treatment: What the IRS Says About Covered Call Premiums

The IRS treats covered call premiums differently depending on what happens at expiration.

If the call expires worthless, the premium is reported as a short-term capital gain in the tax year the option expires, regardless of how long you held the stock. This is true even if you have owned the shares for years.

If the call is exercised and your shares are called away, the premium is added to the proceeds from the stock sale. Your gain or loss on the stock is then calculated as normal, with the holding period of the shares determining whether it is short-term or long-term.

There is a complication called the qualified covered call rules under IRS Section 1092. If you sell a deep-in-the-money call, the IRS may suspend the holding period on your shares, which could convert a long-term gain into a short-term gain. Shallow out-of-the-money calls like the AAPL $220 example above generally do not trigger this rule, but you should verify with a tax professional.

Canadian investors using a similar platform should note that the Canada Revenue Agency (CRA) has its own rules for options premiums, and the treatment can differ depending on whether the CRA classifies your activity as investing or business income.

Keep records of every premium collected, every buyback, and every assignment. Robinhood provides a tax document (Form 1099) at year end, but the detail is sometimes limited. A spreadsheet tracking each trade is worth the effort.

Three Tips to Improve Your Results From Day One

Tip 1 — Stick to liquid stocks with tight bid-ask spreads. AAPL, MSFT, NVDA, and SPY all have active options markets. Wide spreads on thinly traded names eat into your premium before you even start.

Tip 2 — Use the 30-45 day window. Options lose time value fastest in the last 30 days before expiration — a concept called theta decay. Selling calls with 30-45 days to expiration and closing them when you have captured 50% of the premium is a common approach among experienced covered-call traders. You free up the position to sell again sooner rather than waiting for expiration.

Tip 3 — Do not chase high premium on volatile stocks you do not want to own long-term. A stock paying a fat premium is usually doing so because the market expects big moves. If the stock craters, you are still holding it. Only sell covered calls on stocks you are genuinely comfortable holding through a rough patch.

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

No. Covered calls are a cash-secured strategy because your shares serve as the collateral. Robinhood allows you to sell covered calls in a standard brokerage account at Level 2 options approval without a margin account. You do need to own at least 100 shares of the underlying stock in the same account.

How much money can I make selling covered calls on Robinhood?

The premium you collect depends on the stock price, the strike you choose, the time to expiration, and implied volatility. In the AAPL example above, one contract at a $1.90 premium generated $190 on a $21,350 stock position — roughly a 0.9% return in 30 days. Annualized that is around 10-11%, though actual results vary month to month.

What happens if my covered call gets assigned on Robinhood?

Robinhood will automatically sell your 100 shares at the strike price. You keep the premium you already collected, and the proceeds from the share sale are deposited into your account. You no longer own the shares after assignment, so if you want to continue selling covered calls on that stock, you would need to buy 100 shares again.

Can I sell covered calls in a Robinhood IRA?

Yes. Robinhood offers traditional and Roth IRA accounts that support Level 2 options trading, which includes covered calls. Selling covered calls inside an IRA can be tax-advantaged because premiums collected inside a Roth IRA are not taxed at expiration. Consult IRS Publication 590 or a tax advisor for details on IRA contribution and withdrawal rules.

How do I close a covered call early on Robinhood before expiration?

To close the position, you buy back the same call you sold — same ticker, same strike, same expiration. In the Robinhood app, go to your Positions, tap the open call, and select Close. If the stock has not moved much and time has passed, you will likely pay less than you collected, locking in a profit on the options leg.

What strike price should a beginner choose for a covered call?

Most beginners start with an out-of-the-money strike that is 3-7% above the current stock price, which gives the stock room to rise while still collecting meaningful premium. A delta of 0.20 to 0.35 on the call is a common target range — it implies roughly a 20-35% probability of assignment, which many traders find to be a reasonable balance between income and keeping their shares.