Before you start
You need three things: 100 shares of a stock you own, a brokerage account with options trading enabled (Level 1 is enough), and 10 minutes. That's it.
Which stock should you sell calls on?
Start with a stock you already own at least 100 shares of — ideally something you'd hold for the long term regardless. Think Apple, Microsoft, JPMorgan, Johnson & Johnson.
Good covered call stocks tend to share a few traits:
- Liquid options — you want tight bid-ask spreads so you get a fair price
- No imminent earnings — selling through earnings adds unnecessary risk
- Stable to moderately bullish trend — covered calls work best when the stock isn't volatile
ThetaScout tip: The Find Stocks page scores 500+ stocks across 10 methodologies to surface the best candidates. But for your first trade, any quality stock you already own is a good starting point.
How do you choose a strike price?
The key decision is how far above the current stock price to set your strike. This is measured by delta — a number between 0 and 1 that roughly estimates the probability your shares will get called away.
If you're new, start with Conservative. You'll collect less premium per month, but there's a lower chance your shares get called away.
Conservative
Delta: 0.15-0.20
You'll collect less income per month, but there's about an 80-85% chance your shares don't get called away. Best for stocks you really want to keep.
Moderate
Delta: 0.25-0.35
The most popular approach. You'll collect meaningful premium while keeping about a 65-75% chance of retaining your shares. A good starting point.
Aggressive
Delta: 0.40-0.50
You'll collect the most income, but there's roughly a 50-60% chance your shares get called away. Best when you're neutral to slightly bullish and don't mind selling.
What do the screening results mean?
When you screen a stock in ThetaScout, you'll see a table of available contracts. Here's what the key columns mean:
| Column | What it tells you |
|---|---|
| Strike | The price at which you agree to sell your shares if they get called away. |
| Bid | The premium you'll collect per share. Multiply by 100 for the total per contract. |
| Delta | Roughly the probability the option ends up in-the-money. A 0.25 delta means about a 25% chance of assignment. |
| DTE | Days to expiration. Most covered call sellers use 30-45 day windows. |
| Premium Yield | The premium as a percentage of the stock price. Higher is more income, but also more assignment risk. |
| Warnings | Risk flags for earnings, ex-dividend dates, or low liquidity. Pay attention to these. |
How do you know if the trade makes sense?
When you select a contract in ThetaScout, the trade summary shows you exactly what you're getting into:
- Premium collected — the cash you receive today
- Annualized return — what this monthly income looks like projected over a year
- Break-even price — how far the stock can drop before you start losing money (stock price minus premium)
- Scenario analysis — what happens if the stock goes up, stays flat, or goes down
Key check: Look at the break-even price. Are you comfortable holding the stock at that level? If yes, the trade makes sense. If that price makes you nervous, choose a more conservative strike or skip this stock.
How do you place the trade in your brokerage?
Once you've chosen your contract, you need to place the order in your brokerage. The key phrase is “Sell to Open” — this means you're selling a new option contract (not buying one, and not closing an existing position).
Here's how it works on the three most popular brokerages:
Schwab+
- Log into Schwab.com and go to Trade > Options
- Enter the stock ticker and select "Sell to Open"
- Choose your expiration date and strike price
- Set the order type to Limit and enter the premium price
- Review the order and click Submit
Fidelity+
- Log into Fidelity.com and navigate to Accounts > Trade
- Select the Options tab and choose "Sell to Open"
- Enter the ticker, select the expiration and strike
- Set the limit price to the current bid (or slightly above)
- Preview and submit your order
TD Ameritrade / thinkorswim+
- Open thinkorswim and go to the Trade tab
- Enter the ticker and expand the options chain
- Right-click the call you want and select "Sell > Single"
- Adjust the price if needed and click Confirm and Send
- Review the confirmation screen and submit
Important: Always use a limit order, not a market order. Set your limit price at or slightly above the current bid. This ensures you get a fair price and don't give up premium to the market maker.
What do you do after selling the call?
Your option will expire in 30-45 days. Check in once a week — that's it. There's nothing you need to do unless one of these happens:
- The stock drops significantly — you might want to buy back the call (cheap, since it's lost most of its value) and re-evaluate the stock
- You've captured 75%+ of the premium — some sellers buy back early to free up the position and sell a new call sooner
- Earnings are announced — if an earnings date falls before expiration and you didn't account for it, consider closing the position
If the stock stays below your strike at expiration, the option expires worthless thanks to theta decay. You keep the full premium, and you can sell another call next month. Most months, that's exactly what happens.