Selling a covered call on Fidelity means writing a call option contract against shares you already own

A covered call is an options strategy where you sell someone the right to buy your shares at a set price by a certain date. You keep any premium (payment) the buyer pays upfront. If the stock price stays below that set price, the buyer doesn't exercise the option and you keep both the premium and your shares. If the stock rises above that price, the buyer can force you to sell your shares at that lower price — which is why you need to own the shares first (the "covered" part).

On Fidelity, you execute this trade through the options chain on any stock you hold. The process takes about five minutes once your account is set up for options trading. You choose the expiration date, pick your strike price, and submit the sell order like any other trade.

Key Takeaways

  • Your Fidelity account must have options approval at level 2 or higher; level 1 only allows buying calls and puts, not selling them.
  • You must own at least 100 shares of the stock (one contract covers 100 shares) before you can sell a covered call against it.
  • The premium you receive is deposited into your account immediately after the trade settles, typically one business day later.
  • If the stock price rises above your strike price at expiration, your shares will be called away and sold at that strike price, not the current market price.
  • You can close out the position early by buying back the call contract before expiration if you change your mind.

Check your options approval level in Fidelity

Fidelity assigns options approval levels based on your experience and the strategies you request. Level 1 allows you to buy calls and puts only. Level 2 and above allow you to sell covered calls. You can see your current level by logging into your account, going to Account in the top menu, then Account Settings, then Brokerage & Trading, and looking for "Options Approval Level."

If you have Level 1 or no options approval at all, you need to request an upgrade. Click Apply for Options Trading on that same page. Fidelity will ask you about your investment experience and what strategies you plan to use. Select "covered calls" as one of your intended strategies. Approval usually comes back within one business day, though it can take up to five.

Navigate to the options chain for your stock

Once approved, open the stock quote page for any company whose shares you own. On the quote page, scroll down until you see the Options Chain section. If you don't see it, click the Options tab at the top of the quote page.

The options chain shows all available call and put contracts for that stock, organized by expiration date and strike price. The columns show the bid price (what buyers will pay you), the ask price (what sellers want), and other details like volume and implied volatility. For a covered call, you only care about the call side of the chain, not the puts.

Select your expiration date and strike price

The expiration date is how long the buyer has to exercise the option. Common choices are 30 days, 60 days, or longer. Shorter expirations (like weekly options, which expire every Friday) mean higher premium per day but require more active management. Longer expirations give you more time but usually pay less premium overall.

The strike price is the price at which the buyer can force you to sell your shares. If you own 100 shares of a stock trading at $50, you might sell a call with a $52 strike price expiring in 30 days. If the stock stays below $52, you keep the premium and your shares. If it rises to $55, your shares get called away at $52 — you miss the extra $3 per share, but you keep the premium you were paid upfront.

There is no single "right" choice. Selling calls at a higher strike price (further out of the money) means lower premium but less risk of assignment. Selling at a lower strike price (closer to the current price) means higher premium but higher odds your shares get called away.

Place the sell order in Fidelity

Click on the call contract you want to sell. A trade ticket will open. Make sure the order type is set to Sell to Open — this is the standard for selling a covered call for the first time. The quantity should be 1 (one contract, which covers 100 shares).

The bid-ask spread shows what you can actually receive. The bid price is what you will get if you sell right now; the ask is what someone else is asking. For most stocks, you can accept the bid price or place a limit order at a price between the bid and ask. A limit order may not fill if the stock moves, but it can get you a better price if you are patient.

Review the order summary, which shows the premium you will receive and the strike price clearly. Click Preview Order, then Place Order. The trade executes immediately during market hours. Your premium settles into your account the next business day.

Manage your position until expiration

After you sell the call, you own the shares and the buyer owns the right to buy them. You can still sell the shares anytime before expiration, but if you do, the call contract becomes "naked" (uncovered) and you may face a forced buy-back or margin call depending on your account type. It is simpler to just let the position run.

As expiration approaches, you have three outcomes. If the stock stays below your strike price, the call expires worthless, you keep the premium, and you still own your shares. You can then sell another call against the same shares if you want. If the stock rises above the strike price, your shares are called away at expiration and sold at the strike price automatically — you do not have to do anything. If you want to keep the shares, you can buy back the call contract before expiration by clicking Sell to Close on the same options chain, which closes out your obligation.

Understand the tax and dividend implications

The premium you receive is taxed as short-term capital gain or ordinary income depending on your holding period and account type. If your shares are called away, you have a capital gain or loss based on the difference between your purchase price and the strike price, plus the premium you kept. Keep records of all trades for tax time.

If your stock pays a dividend before expiration, you still receive it — the call contract does not change that. However, if the dividend is large enough to make early exercise profitable for the buyer, your shares may be called away before the ex-dividend date, and you will miss the dividend. This is rare but possible with high-dividend stocks.

Frequently Asked Questions

What if I don't have 100 shares — can I sell a partial call?

No. One options contract always represents 100 shares. If you own 50 shares, you cannot sell a call against them. You would need to own at least 100 shares to sell one contract. Some brokers allow selling calls against fractional shares in certain situations, but Fidelity requires full 100-share increments.

Can I sell a covered call on a stock I just bought?

Yes. There is no holding period required. You can buy 100 shares and sell a call against them on the same day. However, if you sell the shares before the call expires, the call becomes uncovered and you may face complications. It is simpler to wait until after expiration or buy back the call first.

What happens if the stock gaps up past my strike price overnight?

Your shares will still be called away at your strike price, not the gapped-up price. That is the trade-off of selling a covered call — you cap your upside. If the stock opens at $60 and your strike was $52, you sell at $52 and miss the extra $8 per share. The premium you received upfront is meant to compensate for this risk.

Can I close out a covered call early?

Yes. Go back to the options chain, find the same call contract, and click Buy to Close. You will pay the current ask price to buy back the contract. If the stock has fallen, the call is worth less and you make a profit on the trade. If the stock has risen, the call is worth more and you take a loss. Either way, you are no longer obligated to sell your shares.

Do I need margin to sell a covered call?

No. Because you own the shares, the position is fully secured and does not require margin. You can sell covered calls in a cash account. However, if you buy back the call before expiration, you need enough cash or buying power to cover the cost.