How to Sell Covered Calls on Fidelity (Beginner’s Guide)

Someone asks:

I’m pretty new to selling covered calls on Fidelity. Can someone educate me on how to do it?

Before we start, be sure to meet the following prerequisite.

  • You must have at least Option Level 1 enabled on your account.
  • You must own at least 100 shares of the stock that you want to write a covered call on.

How to Sell Covered Calls on Fidelity

  1. Login to your Fidelity account.
  2. Click on Trade via the top menu.
  3. Select Options > Account (the account that you want to sell covered calls on).
  4. Type in the ticker symbol.
  5. Under Action, select Sell to Open.
  6. Enter the Quantity. Select Call.
  7. Choose the Expiration Date of your Covered Call and pick the Strike.
  8. Select your Order Type and enter the price you want for the Covered Call.
  9. Preview and finalize your trade order by clicking Submit.

Your Trade ticket should look similar to the screenshot above. Of course, some fields such as expiration date, strike, symbol, and the limit price will vary depending on your preference.

When selling a covered call on Fidelity, ensure that the Action field is set to Sell to Open. That is extremely important.

When Do I Receive My Premium After Selling Covered Calls?

I’ve never sold covered calls and cash-covered puts on Fidelity before. I sold a few last week and today – where does the premium for them to show and/or when? On Robinhood, it was immediately reflected in my buying power but I’m just not seeing it here?

Answer:

Sandro C:

I do options all the time. It is reflected immediately. I would be very careful comparing Robinhood to other platforms. Just because you received a credit from selling a call or put, does not increase your buying power. You still need that to close the position (BTC = Buy to Close). I consider Fidelity to be very realistic with what you own (and owe till expiration).

What Are the Risks of Selling Covered Calls?

Does anyone have any bad experiences with selling covered calls? I’ve been sticking to out-of-money calls that are above my cost basis.

Answers:

Todd A:

I mean your only risk there is an opportunity cost. The stock happens to FLY past your strike price and you’re giving up potential gains.

Otherwise, the loss potential lies in the shares you’re holding in they happen to decrease but you already knew that.

So really it’s pretty straight forward and it seems like you get it but yeah, do be aware of that opportunity loss.

Adam S:

Sounds like you are doing it right by setting your strikes properly. Keep in mind that it’s a neutral-bullish position. Some people are adamant that it’s a bearish position and that assignment is to be avoided at all costs. They are incorrect in both cases.

Only other advice is to stick with your trade and ignore FOMO. It’s tempting to buy back the call for a loss if the underlying moons, in the hopes that it will go higher, but you’re risking trading a max profit win for a potentially more lucrative higher risk position.

Robert A:

You have the right formula. For me, about 80% of the time they expire without being exercised. I have some boring low vol / high yield div stocks that are bond substitutes for me; it just juices their yield.

Can You Sell Covered Calls In a Fidelity Roth IRA?

Todd A:

Yeah nothing wrong with that and if it’s a Roth it just adds to the tax free gains. I would do it with stocks you’re already willing to hold but ones that remain fairly steady or grow at a predictable pace.

Robert A:

It’s an effective risk management strategy for long positions. It generates income, and the majority of the time, they expire, and in all cases you generate option income.

James F:

I sell covered calls on positions I’m ready to sell or don’t care if they go above the strike price because I believe if they do it probably won’t be by much. If I’m really bullish then I wouldn’t sell the call. I also consider selling a call on a day a position makes a big move upwards that I don’t think is deserved or will be a sustainable uptrend. Usually just go for a week out expiration. Not a lot of money but sometimes just seems like free money.

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Hi! I'm Diego, 38, and I currently reside in New York. I work as a financial analyst. I primarily focus on initiatives involving research and data analysis.

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