Covered Call Yield Calculator
This covered call yield calculator finds the premium yield, annualized return and maximum profit of a covered call, so you can compare strikes and expiries.
What it does
The Covered Call Yield Calculator shows the income you earn from writing a call option against stock you already own. It converts the premium into a plain yield, annualizes it, and shows your maximum profit if the shares are called away at the strike.
Data sources & parameters
This calculator uses standard financial formulas and runs entirely in your browser. It needs no external rate data — your result is computed only from the values you enter above.
We always strive to use the latest data for every variable so our results and reports are as accurate as possible. Even so, errors are possible — you should not rely on this tool or its report alone, and we accept no liability for any decision made based on it.
The formula
premium_yield = premium / stock_price × 100; annualized_yield = premium_yield × (365 / days_to_expiry); max_profit = (strike − stock_price) + premium
How it works
Premium yield is the premium divided by the current share price. Annualizing scales that yield to a full year using the days to expiry. The maximum profit if called adds any gain up to the strike to the premium you collected.
Where it is used
- Comparing the income of different covered call strikes and expiries
- Estimating the annualized return of a covered call strategy
- Weighing option premium against the profit given up above the strike
Worked example
An investor owns stock at $100.00 and writes a call with a $105.00 strike, collecting $3.00 in premium for 30 days. The premium yield is …, which annualizes to …, and the maximum profit if the shares are called away is ….
What the covered call yield calculator does
Writing a call option against stock you own earns a premium. Enter the current share price, the premium per share, the strike price and the calendar days until expiry, and the calculator shows the premium as a yield on the share price, that yield annualized so trades of different lengths can be compared, and the maximum profit if your shares are called away at the strike. Change the strike or expiry to see the trade-off between income and the upside you keep.
How a covered call earns income
You sell someone the right to buy your shares at the strike price before expiry and receive the premium immediately, which you keep whatever happens. If the price stays below the strike, the option expires worthless and you keep the shares and the premium. If it rises above, your shares are sold at the strike, and you keep the premium plus any gain up to that level. The premium is like rent on shares you were holding anyway; the cost is that you give up any gains above the strike.
The three figures
- Premium yield: the premium divided by the current share price. A premium yield of three percent means you collected three percent of the share price in cash for this one trade.
- Annualized yield: the premium yield scaled to a 365-day year using the days to expiry, the rate you would earn if you could repeat the same trade all year.
- Maximum profit if called: the move from the current price up to the strike plus the premium collected.
Reading the annualized yield
A small premium over a short period can annualize to a very large number: three percent over thirty days is more than thirty-six percent a year. That assumes the same premium is available every month for a whole year, which rarely happens. Premiums shrink when volatility falls, your shares may be called away and leave nothing to write against, and repeated trading has costs. Use the annualized figure to compare calls with each other, not as a forecast.
The trade-off
A strike close to the current price brings a larger premium but gives up most of the potential gain. A strike well above it keeps more upside but pays less. An investor who mainly wants income and is happy to sell at the strike tends toward closer strikes; one who wants to keep most of the upside treats the premium as a small extra and chooses higher strikes. Compare the premium yield and the maximum profit side by side to find the balance that fits your view of the stock.
Common mistakes
A very high annualized yield usually comes from a very short expiry and cannot be sustained. The premium is not free money: you are selling the gains above the strike, so if you expect the stock to surge, a covered call may cost more than it pays. And it cushions a fall only by the amount of the premium; if the stock drops sharply, it does little to protect the position.
This article is general information only and is not financial advice.
About This Covered Call Yield Calculator
Use this covered call yield calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.
Frequently asked questions
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