Covered Call Calculator
Assumes the call is exercised and the shares are assigned at the strike. That fixes both legs of the trade: you receive the strike price rather than whatever the stock is worth above it, plus the premium you already banked.
Inputs
Check these inputs
If the call is exercised
Returns
| Pre-tax | After tax | |
|---|---|---|
| Absolute return | — | — |
| Total return | — | — |
| Annualized — compounded | — | — |
| Annualized — simple | — | — |
How you get there
| Stock cost basis | — |
|---|---|
| Sale proceeds at strike | — |
| Gain on the stock | — |
| Option premium received | — |
| Taxable gain | — |
| Tax | — |
| Net profit | — |
| Cash back at assignment | — |
| Holding period | — |
Where the pre-tax return came from
| Premium yield on cost | — |
|---|---|
| Appreciation to the strike | — |
| Pre-tax total return | — |
Profit bridge
If it is never assigned: rolling the same call
| Target | Cleared | What would clear it | Premiums repay it |
|---|
Notes
Profit = (strike − purchase price + premium) × shares − tax
Total return = profit ÷ (purchase price × shares)
Annualized = (1 + total return)^(365 ÷ days) − 1,
with the simple convention total return × 365 ÷ days shown beside it.
Premium yield (rolling) = premium × (1 − tax) ÷ purchase price × (365 ÷ days to expiry)
About covered-call returns
What "if it is exercised" means
When you write a covered call you already own the shares and you sell someone the right to buy them from you at the strike. If the stock finishes above the strike, that right is worth exercising and your shares are assigned: you sell at the strike no matter how far above it the stock has run. This is the case the calculator prices, and it is the one worth checking before you write the call, because it is the outcome you have the least control over.
It is also the easiest outcome to compute exactly. There is nothing left to forecast — the sale price is the strike, the premium is already in your account, and the only open question is the date. Everything above is arithmetic.
Why one tax rate covers both legs
It looks like a simplification to tax the premium and the share sale at the same rate, but
for an exercised call it is exact. Under the US assignment rule the premium on a written
call is not taxed as separate income when the call is exercised — it is added to the
amount realized on the sale of the stock. So the taxable gain is
strike + premium − cost in one number. Taxing the two legs separately at
the same rate gives rate × (strike − cost) + rate × premium,
which is the same figure. The calculator applies the rate once, to the combined gain.
Tax is charged on a gain only. If assignment leaves you with an overall loss, the calculator shows no tax rather than crediting you a refund: whether that loss saves you anything depends on other gains it could be offset against, which this page cannot see.
Simple and compounded annualization
Most covered calls run for weeks, so the raw return is small and the annualized figure is the
one people compare. There are two conventions and they disagree, so both are shown.
The simple version scales the return by
365 ÷ days. The compounded version asks what constant
yearly rate would produce the same result if you kept rolling the proceeds back in, and it is
always the higher number for a positive return held under a year.
Treat both as a comparison yardstick, not a forecast. Annualizing assumes you can repeat the trade on the same terms for the rest of the year, and you generally cannot — the premium you were paid reflects the volatility priced in at the time, and after assignment you no longer own the shares. The shorter the holding period, the more aggressively a modest return extrapolates: 2% over a week annualizes past 100% under either convention.
What this does not model
- Dividends received while you held the stock. If you want them counted, add the per-share dividends to the option premium — both are cash received per share, and at the single rate this page assumes they are taxed identically here.
- Commissions and assignment fees. Fold the purchase commission into the purchase price; net the option commission out of the premium.
- Early assignment. US equity calls are American-style and can be exercised before expiration, most often on an in-the-money call the day before the stock goes ex-dividend. If that happened, enter the actual assignment date instead of the expiration date — the holding period shortens and the annualized return rises.
- Whatever decides which rate applies to you. The calculator applies the single rate you enter, once, to the combined gain. Choosing that rate is outside what this page does.
- A premium that stays on offer, or shares that stay put. The rolling scenario assumes you can write the same call for the same money every cycle, forever. In practice the premium tracks implied volatility and the share price's distance from the strike: a quiet market pays less, and a fall in the shares changes which strike is worth writing at all. It also says nothing about what the shares themselves did — the premium yield can look healthy while the position is deep underwater, which is the standard way a covered-call income stream flatters a bad holding.
- Currency. Figures are formatted in dollars, but the arithmetic is unit-agnostic — enter a consistent currency throughout and the percentages hold.