Overview of Covered Calls at Robinhood
If you are interested in an options strategy that may help generate income from shares you already own, covered calls could be worth considering. Covered calls are often viewed as more conservative than naked calls, but they still carry stock-market downside risk and assignment risk.
If you want to learn more about writing covered calls at Robinhood, review the information we’ve gathered below.
Trading covered calls at Robinhood is straightforward, and there are a couple of ways to do it. You can write a covered call through Robinhood’s main website or through the mobile app.
To trade covered calls at Robinhood, you will need
basic options trading permission, also known as Level 2. You will also need to own
at least 100 shares of the underlying stock in your account to cover each short call contract.
If you are not sure which options trading permission you currently have, navigate to ‘Settings,’ then ‘Investing,’ then ‘Options Trading.’
Here’s how you can open a covered call position.
Writing Covered Calls at Robinhood
As mentioned above, you’ll need at least
100 shares of the stock you want to use for a covered call. If you already own the shares, go to the stock’s options chain and select a call contract to sell.
If you do not already own the shares, you’ll need to buy them first. Then, when you sell a call against those shares, Robinhood will show the stock and option as part of the covered call position.
Once you have the shares, you will choose the strike price, expiration date, and premium you want to collect from the option.
Remember to check the ‘Sell’ button at the top to make sure you are on the sell side.
After the sale is confirmed, you can follow the position’s progress from the main page of your brokerage account.
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Covered Call Details and Advice
A common belief about covered calls is that they involve little risk. While a covered call is less risky than a naked call, it is not risk-free. The stock can still fall sharply, and the short call can limit upside if the stock rises above the strike price. Consider the following points to better understand risk and income potential when writing covered calls.
Cost Basis
First, determine the average cost of the 100 shares you will use to cover the short call option. When you open a covered call position, you are agreeing to sell your 100 shares at a set price if the option is assigned. That agreed-upon sale price is the option’s strike price.
Be careful when selling a call option with a strike price below your stock’s average cost basis. If your shares are called away below that cost basis, you could realize a loss on the stock position, even though you keep the option premium.
That said, the farther out of the money you go, the less premium you can usually collect from the covered call. It is often useful to find a balance between the premium received and the risk of losing your 100 shares through assignment.
The Greeks
Options contracts are priced using several variables. As an options seller, it is useful to understand these variables. Learning about the Greeks and how they affect option pricing can help you better evaluate a covered call trade.
Another important point is that none of the Greeks works alone. Each Greek plays a role in an option contract’s value, but you should think about their combined effect when choosing a contract to sell.
There are several pricing variables to consider, but here are some of the first Greeks to understand.
The Role of Probabilities (Delta)
Newer investors sometimes overlook probabilities when selling covered calls. Understanding probability metrics can help you choose a contract that better matches your goal, whether that goal is higher income, a lower chance of assignment, or a balance between the two.
In short, you may want to know the probability that your short call will expire out of the money. Whether you prefer a higher-premium trade with a greater chance of assignment or a lower-premium trade with a lower chance of assignment, probability tools can help guide your contract selection.
Delta is often used as a rough estimate of an option’s probability of expiring in the money, but it is not a perfect probability forecast. Robinhood also provides option-chain metrics such as Probability ITM and Probability OTM, which can help you review the theoretical likelihood that a contract will expire in or out of the money.
The Role of Time (Theta)
Time is another important part of the covered call strategy. Theta measures how much an option’s price may theoretically decline as time passes, assuming other factors stay the same.
Robinhood notes that time decay generally starts to accelerate around 30 to 45 days before expiration. For sellers of covered calls, this can be helpful because the short call may lose value as expiration gets closer.
The closer an option gets to expiration, the more quickly its remaining extrinsic value may decline, although changes in stock price and implied volatility can still affect the contract’s value.
The Role of Volatility (Vega)
Another factor to consider is volatility. Higher implied volatility can lead to higher option premiums, while lower implied volatility can reduce them, assuming other factors stay the same. As an option seller, Vega can work in your favor when volatility falls after you sell the call.
Selling covered calls during periods of high implied volatility can bring in a higher premium. If implied volatility later drops, the call’s value may decline, which can help the seller.
Using volatility pricing can have benefits, but high volatility can also mean a greater chance of large price moves. If the stock rises enough to put the short call at or in the money, assignment risk may increase.
Updated on 5/4/2026.
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