A covered call on Fidelity is a short call backed by shares you own. You need at least 100 shares of the underlying stock or ETF for each standard call contract. Fidelity's online options pricing lists a $0 commission, with applicable contract fees.
To place the trade, open Fidelity's options chain, select a call, choose Sell to Open, enter the contract quantity and price, review the order, and submit it. Your account must be approved for options trading before you can sell a covered call.
Covered Calls on Fidelity: At a Glance
| Item | What to use |
|---|---|
| Shares required | 100 shares for each standard equity call contract |
| Option type | Call |
| Opening action | Sell to Open |
| Closing action | Buy to Close |
| Main objective | Collect an option premium while potentially selling shares at a higher price |
| Main risk | Your shares can be called away, and your stock upside is limited |
| Fidelity online pricing | $0 commission per online options trade, plus applicable contract fees |
Fidelity's fee schedule can change, so check the latest pricing before placing an order.
Step 1: Apply for Options Trading Approval
You need a Fidelity brokerage account and an approved options agreement before selling a covered call. Fidelity identifies covered call writing on equity options as an eligible basic options strategy, commonly associated with its lower options approval level.
On Fidelity.com, the application is generally located under:
Accounts & Trade → Account Features or Update Accounts/Features → Margin and Options
Your account must also contain enough shares to cover the contracts you want to sell. For example:
- 100 shares: up to 1 covered call
- 250 shares: generally up to 2 covered calls
- 500 shares: up to 5 covered calls
Standard equity option contracts usually represent 100 shares. Adjusted contracts can have different deliverables, so check the contract details before placing an order.
Step 2: Open Fidelity's Options Chain
After logging in:
- Select Accounts & Trade.
- Choose Trade.
- Enter the stock or ETF symbol.
- Open the Options Chain or Trade Options screen.
- Select the expiration date you are considering.
- Review the available call strikes.
Fidelity's options chain displays expirations, strikes, bids, asks and other option information. Selecting a bid price can populate an options trade ticket with a sell order.
Step 3: Select the Call Contract
Choose the call based on two details:
- Expiration date: When the option contract ends
- Strike price: The price at which you may have to sell your shares
Choose a strike price at which you would be comfortable selling the stock. Selling a call gives the buyer the right to purchase your shares at the strike price if the option is exercised.
Step 4: Select "Sell to Open"
On Fidelity's options order ticket, select:
- Action: Sell to Open
- Quantity: Number of call contracts
- Order type: Usually a limit order or market order
- Expiration: The selected expiration date
- Strike: The selected strike price
Sell to Open is the correct action when you are opening a new covered call. It creates a short call position and gives you an obligation to sell the covered shares if assignment occurs.
Sell to Close is different. It closes a call option that you already own and is not the action used to open a covered call.
A limit order lets you set the minimum premium you are willing to accept. The order may not execute if buyers are unwilling to pay that price. A market order is more likely to execute, but the final price is not guaranteed.
Step 5: Enter the Number of Contracts and Premium
Option prices are normally quoted per share, while one standard contract usually covers 100 shares.
If Fidelity displays a call premium of $1.20:
- 1 contract represents 100 shares
- Gross premium: $1.20 × 100 = $120
- 2 contracts represent 200 shares
- Gross premium for 2 contracts: $240
The amount received is reduced by applicable contract fees and depends on the execution price.
Before submitting the order, confirm that the contract quantity does not exceed the number of covered shares in your account.
Step 6: Preview and Place the Order
Review Fidelity's order confirmation screen and check:
- Correct account
- Correct stock or ETF
- Correct expiration
- Correct strike price
- Sell to Open action
- Correct number of contracts
- Limit price or market order selection
- Estimated premium and fees
Then select Place Order. Fidelity provides an order confirmation after submission.
Covered Call Example
Assume you own 100 shares purchased at $50 per share. You sell one call with:
- Strike price: $55
- Premium: $1.20 per share
- Expiration: 30 days away
Your gross premium is:
$1.20 × 100 = $120
Your approximate break-even price is:
$50.00 − $1.20 = $48.80
If the stock remains below $55 at expiration, the call may expire worthless. You generally keep the $120 premium and retain the shares.
If the stock rises above $55 and the call is assigned, you sell the shares at $55. Your maximum gross profit, based on the $50 purchase price, is:
($55 − $50 + $1.20) × 100 = $620
This calculation excludes commissions, contract fees, dividends and taxes. It also shows the trade-off: once the shares are called away, you generally do not participate in stock gains above the $55 strike price.
What Happens After Selling the Covered Call?
If the Stock Stays Below the Strike Price
If the call expires out of the money, it can expire worthless. You keep the premium and continue to own the shares. Fidelity describes this as the typical outcome when the seller expects the stock to remain stable or rise only modestly.
If the Stock Rises Above the Strike Price
The call may be exercised, requiring you to sell the shares at the strike price. At expiration, an in-the-money equity option is generally subject to automatic exercise when the stock is at least $0.01 above the strike price, subject to applicable rules and exceptions.
If You Are Assigned Early
Assignment can occur before expiration. Fidelity says early assignment is especially relevant when an in-the-money call approaches an ex-dividend date and the option's remaining time value is less than the dividend.
If assignment occurs on a covered call, Fidelity automatically sells the shares in your account at the strike price.
How to Close a Covered Call Before Expiration
To remove the obligation before expiration:
- Open the position or options chain.
- Select the same call contract.
- Choose Buy to Close.
- Enter the number of contracts.
- Review and submit the order.
Buying to close removes the short call position once the order executes. The cost may be higher than the original premium if the stock has risen, volatility has increased or the contract still has substantial time until expiration.
Fidelity also supports rolling a covered call. Rolling means buying the existing call to close and selling another call, potentially with a different strike price or expiration date. Rolling does not remove the risk of assignment. The combined trade can result in a net debit or net credit, depending on the two option prices.
The Main Risks to Understand
Your Shares Can Fall
The premium provides only limited downside protection. If the stock falls substantially, the loss on the shares can exceed the premium received.
Your Upside Is Limited
If the stock rises well above the strike price, you normally must sell at the strike price rather than participate in the additional increase.
Assignment Can Create Tax Consequences
In a taxable account, assignment can affect capital gains, holding periods and the tax treatment of dividends. Fidelity notes that covered call transactions can have complex tax consequences.
Dividends Can Increase Assignment Risk
Before selling a call on a dividend-paying stock or ETF, check the ex-dividend date. An in-the-money call with little remaining time value may be assigned early before the ex-dividend date.
Bottom Line
The Fidelity order sequence is:
Options Chain → Select Call → Sell to Open → Enter Contracts and Price → Preview Order → Place Order
A covered call fits only if you are comfortable with both possible outcomes: keeping the shares if the call expires worthless, or selling them at the strike price if assignment occurs.