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Selling covered calls on shares you already own

If you already own 100 shares of a stock, you can sell a covered call on them today with no new money. It's the cheapest way into selling options. The catch is one question: what did you pay for those shares, and would you sell them at the strike?

Options guide · 7-minute read · Updated 2026-10-26

Why this is the cheapest way in

A Covered call needs 100 shares as the "cover". If they're already sitting in your account, you've already paid for the hard part. Selling the call costs nothing up front; it pays you a premium.

Compare the other doors into selling options. A cash-secured put needs the full strike in cash set aside. A Buy-write means buying the shares today. Shares you already own skip both. You need options approval from your broker, usually the lowest level, and a round lot of 100. See why covered calls need exactly 100 shares.

The question to answer first

Before you touch the Options chain, write down one number: what you paid per share. That's your Cost basis.

Then write a second number: the lowest price you'd be happy to sell at. Call it your floor.

Every strike you consider gets tested against both:

• Strike below your cost. If called away, you lock in a loss on the shares. The premium rarely covers it.
• Strike between cost and floor. You'd make a little on the shares, but less than you wanted. Only if the premium makes up the gap.
• Strike at or above your floor. The call is a limit order that pays you to wait. This is the normal case.

If the shares are far underwater, read covered calls on a losing stock before selling anything.

A worked example on old shares (an illustration, not a trade idea)

You've held 100 shares of a made-up stock, XYZ, for two years. You bought them at $40. XYZ now trades at $50. Your floor: "I'd sell at $55."

You sell a 35-day $55 call for $1.00 and collect $100. Nothing else changes. The shares stay where they were.

The first row is the one to take seriously. Old shares feel "free" because they're up. They aren't. A fall from $50 to $35 is a $1,500 drop in your account, and the $100 doesn't change that. The gain from $40 cushions the feeling, not the loss.

The tax-lot question

If you bought the same stock more than once, you own several lots at different prices. When you're called away, your broker sells 100 shares, and which lot it picks changes your tax bill.

• Many US brokers default to "first in, first out": the oldest lot goes first. You can often pick a different method before the sale settles; check your broker's current help pages.
• In Canada, the cost is averaged across all your shares of the same stock in your taxable accounts, so there's no lot to choose.
• Holding period matters in the US. Shares held over a year are long-term. Certain in-the-money calls can pause that clock. Our covered call taxes page has the basics.

If a lot is close to a year old, check before you sell a call that might get it called away early.

Canadian readers: covered calls on shares you hold in a TFSA or RRSP are widely allowed, but options permissions differ by broker, so check that the account is enabled.

When not to sell the call

• You'd hate to lose the shares. A long-held position in a company you believe in. The call can take it from you at the strike. If that would upset you, don't sell it.
• The stock is a big part of your account. The call doesn't reduce that risk. See covered call when the stock drops.
• An earnings date is inside the expiry. Wait for the expiry after it.
• You're doing it to "make back" a loss. That's how people end up selling strikes below cost.

The first trade, step by step

1. Confirm you hold at least 100 shares in one account, and options are enabled.
2. Write your cost and your floor.
3. Open the chain about 35 days out. Pick a strike at or above your floor. Note the bid.
4. Check earnings and the Ex-dividend date.
5. Sell one call. One. Then follow the rest in your first covered call.

If you want to keep going after the shares are called away, that's the back half of the wheel strategy: sell a put to buy them back lower, or move on.

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