How to Sell Covered Calls on Fidelity

Selling a covered call on Fidelity in four steps

A covered call is an options trade where you sell the right for someone else to buy stock you already own, at a price you set, by a date you choose. In exchange, you receive a payment upfront. On Fidelity, you sell the call through the same account where you hold the shares — you do not need a separate options account, though Fidelity does require you to have options approval at level 1 or higher.

The four-step process is: request options approval if you do not have it, locate the stock in your Fidelity account, open the options chain for that stock, and enter a sell-to-open order for the call contract you want. The entire trade takes minutes once your account is approved.

Fidelity does not charge a commission on options trades, though your broker does charge the standard bid-ask spread — the difference between what buyers will pay and what sellers will accept. This spread varies by how actively the option is traded.

Key Takeaways

• You must own at least 100 shares of the stock to sell one covered call contract, since each contract represents 100 shares.
• Fidelity requires options approval level 1 or higher; you can request this in Account Settings under Brokerage and Trading, then Options Approval.
• The call you sell is identified by three things: the stock ticker, the expiration date, and the strike price — the price at which the buyer can purchase your shares.
• If the stock price rises above your strike price by expiration, the buyer will likely exercise the call and purchase your shares at that price, ending your position.
• You keep the premium (the upfront payment) regardless of whether the call is exercised, but you give up any gains above the strike price if it is.

Getting options approval on your Fidelity account

Before you can sell any options on Fidelity, your account must have options approval. Log into your Fidelity account online or in the mobile app, then go to Account Settings. Select Brokerage and Trading, then Options Approval. You will see your current approval level — if you have none, you will see "Not Approved."

Click the link to request approval. Fidelity will ask you a series of questions about your investment experience and your reason for trading options. For covered calls, you are trading at level 1, which is the most basic approval level and the easiest to receive. Fidelity typically approves level 1 requests within one business day, though approval can be immediate.

Once approved, you can begin selling covered calls. Your approval level does not expire, so you will not need to reapply each time you want to trade.

Finding the stock and opening the options chain

Navigate to the stock you own in your Fidelity account. You can search by ticker symbol in the search bar at the top of the page, or go to your Positions tab to see all holdings. Click on the stock name or ticker to open its detail page.

On the detail page, look for the Options tab or a link that says "View Options Chain." Click it. You will see a table with two sides: calls on the left and puts on the right. Each row represents a different expiration date and strike price. The columns show the bid price (what buyers will pay you), the ask price (what sellers want), the volume (how many contracts traded that day), and open interest (how many contracts are currently open).

Higher volume and open interest mean tighter bid-ask spreads and easier execution. Calls expiring sooner and closer to the current stock price typically have more volume than distant or far out-of-the-money calls.

Choosing the strike price and expiration date

The strike price is the price at which the buyer can purchase your shares if they exercise the call. If you sell a call with a strike price of $50 and the stock rises to $60, the buyer will exercise and you will sell your shares at $50 — you will miss the $10 gain.

Most covered call sellers choose a strike price slightly above the current stock price, called "out of the money." This means the call is less likely to be exercised, so you keep your shares. The trade-off is that out-of-the-money calls pay a smaller premium than in-the-money calls (those below the current price). A call that is deep out of the money pays almost nothing.

The expiration date is how long the buyer has to exercise the call. Fidelity offers expirations ranging from days to months away. Shorter expirations (7 to 45 days) are common for covered calls because they let you roll the position — sell a new call at a higher strike or later date — if the stock stays flat or rises modestly. Longer expirations (60 to 180 days) pay higher premiums but lock up your shares for longer.

Entering the sell-to-open order

Once you have chosen your strike and expiration, click on the bid price in the calls column. This opens an order ticket. Fidelity will pre-fill the order as "Sell to Open" — this is correct for a covered call. The quantity will default to 1 contract (which covers your 100 shares); do not change this unless you own more than 100 shares and want to sell multiple calls.

Review the order: the stock ticker, the expiration date, the strike price, the bid price you will receive, and the total credit (bid price × 100). Fidelity will show you the bid and ask prices side by side; you will receive the bid price if you sell immediately.

Click Preview Order, then Submit. The order will execute immediately if you are selling at the bid price during market hours. Once filled, the premium will appear in your account as cash, and your shares will be marked as "covered" — Fidelity will prevent you from selling the shares while the call is open, since the buyer has the right to purchase them.

What happens at expiration

On the expiration date, one of two things occurs. If the stock price is below your strike price, the call expires worthless and the buyer does not exercise. Your shares remain in your account, and you keep the premium you received. You can then sell a new covered call on the same shares if you want.

If the stock price is at or above your strike price, the buyer will exercise the call and purchase your shares at the strike price on the expiration date. Fidelity will automatically remove the shares from your account and deposit the strike price × 100 into your cash balance. You will have closed the position and will no longer own the stock.

Fidelity sends a notification when a call is exercised, but the transaction is automatic — you do not need to do anything. If you want to avoid assignment (the exercise of the call), you can close the position early by buying the call back before expiration, though this will cost you money if the call has gained value.

Rolling a covered call to extend or adjust your position

Rolling means closing your current call and selling a new one at a different strike or expiration date. This is common when the stock price has not moved much and you want to collect another premium without taking assignment.

To roll, go back to the options chain for the same stock. Buy to close the call you sold (click the ask price on the calls side), then immediately sell to open a new call at your chosen strike and expiration. You can do this as a single "roll" order on some platforms, but on Fidelity you will enter two separate orders. The net credit or debit is the difference between what you pay to close and what you receive to open the new call.

Rolling is a way to keep collecting premiums on the same shares without taking assignment, but each roll is a separate trade and carries its own bid-ask spread cost.

Frequently Asked Questions

What if I do not own exactly 100 shares?

You need at least 100 shares to sell one covered call contract. If you own 150 shares, you can sell one call (covering 100 shares) and leave 50 unprotected. If you own 50 shares, you cannot sell a covered call until you buy 50 more shares. Fidelity will prevent you from selling a call you cannot cover.

Can I sell a covered call on a stock I just bought?

Yes. There is no holding period. You can sell a covered call the same day you buy the shares, as long as your account is approved for options and the options chain exists for that stock (most stocks have options, but some do not).

What happens to my dividends if my shares are called away?

If your shares are exercised before the dividend payment date, you will not receive the dividend — the new owner will. If the dividend is paid before expiration, you will receive it even if the call is later exercised. Check the ex-dividend date (the date by which you must own the shares to receive the dividend) before selling a call.

Can I close a covered call early if I change my mind?

Yes. Go to the options chain, find the call you sold, and click the ask price to buy it back. You will pay the ask price, which may be higher or lower than the bid price you received when you sold it. The difference is your gain or loss on the trade. Closing early frees up your shares to sell if you want.

Does Fidelity charge fees for selling covered calls?

Fidelity charges no commission on options trades. You pay only the bid-ask spread — the difference between what you receive when you sell and what you pay when you buy. This spread varies depending on how actively the option is traded.