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I sold a covered call in my TFSA. What was different, and what wasn't?

A covered call inside a TFSA is the same trade as in a regular account. What's different is the paperwork, the cash rules, the currency and what you can't do next. Here's each one.

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

The trade was the same

You owned 100 shares, you sold a Call option on them, you collected a premium. That's a Covered call, and it works exactly the same way inside a TFSA as anywhere else. The premium is yours. If the stock closes above the strike at expiry, the shares are called away at the strike.

So if the trade felt different, it wasn't the option. It was the account around it.

The permission form

Most Canadian brokers need a separate options agreement before you can trade options in any account, and the TFSA often gets its own approval. Questrade, IBKR and Wealthsimple each have their own form and their own levels.

Covered calls are at the lowest level almost everywhere, because you already own the shares. Selling a put with cash set aside is a different story: some brokers allow it in a TFSA, some don't. That's the first thing to check before you plan the wheel strategy in this account, because the wheel needs both halves. Our wheel in a TFSA guide goes deeper on that.

No margin, so the cash has to be real

A TFSA is a cash account. The broker won't lend inside it. For a covered call that changes nothing: the shares are the cover, no cash is needed.

It matters for what comes after assignment. If your shares get called away, you have cash. If you then want to sell a put on the same stock, the full strike × 100 has to sit in the TFSA in cash. There's no "buying power" to lean on. If the cash isn't there, the put can't be sold, no matter what level you're approved for.

The currency twist

Most liquid options are on US-listed stocks, so the shares, the premium and the strike are all in US dollars. Inside a TFSA that creates two surprises:

• Conversion. If your TFSA holds only Canadian dollars, the broker converts at its own rate, with a spread, when you buy the shares and again when you get the premium. Many brokers offer a US-dollar side of the TFSA. Ask for it before the first trade.
• Contribution room. Room is tracked in Canadian dollars. A US-dollar gain inside the account doesn't use room, but the exchange rate on the day you contributed is what counts.

A called-away sale lands as US cash. That's fine. It just sits there until you use it or convert it.

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

You hold 100 shares of a made-up US stock, XYZ, bought at $50 inside your TFSA. You sell one 30-day call with a $55 strike for $1.00, collecting $100.

Same table as a regular account. Two things differ:

1. No tax line. The $100 premium and the $500 gain are not taxed inside the TFSA, and there's nothing to report. In a regular account, both would be.
2. The loss row is also tax-free, which cuts the wrong way. The $900 loss in the first row can't be claimed against anything. A capital loss in a TFSA is simply gone.

What happens after assignment

If XYZ closes at $58, the shares leave and $5,500 arrives, in US dollars, inside the TFSA. Nothing leaves the account. Your contribution room is untouched, because nothing was withdrawn.

From here you can buy the shares back, buy something else, or leave the cash. If you want to sell a put next, go back to the permission question: your broker has to allow it in a TFSA, and the full cash has to be there.

One more thing that was different: if you did withdraw the cash, that room comes back only in the next calendar year. Called away in November, withdrawn in December, re-contributed in January is fine. Re-contributing in December uses this year's room, and without unused room it's an over-contribution.

One caution on frequency

The CRA has gone after some TFSA holders it decided were running a trading business inside the account. Those cases involved very active, day-trading-style accounts. Selling an occasional covered call on shares you already hold is nowhere near that line. But if you're writing dozens of short-dated options a month, it's worth reading up or asking an accountant, because the rules are judged case by case. This is general information, not tax advice.

What to do before your next TFSA call

1. Confirm which option strategies your broker allows in the TFSA, in writing.
2. Open the US-dollar side of the account if it exists.
3. Keep enough US cash on hand for whatever you plan to do after assignment.
4. Treat the shares as the risk. Size them as you would in any account; the TFSA label doesn't shrink the downside.

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