Covered Calls For Income

You already know you need money and investments in place to secure your retirement. However you’d also like to have some consistent income before then. It’s widely known that stocks and options can provide the means for a secure and comfortable lifestyle, but you’d actually like to enjoy that income…now!


First off let me start by saying you can achieve consistent income from selling covered calls. And by consistent I mean month after month and year after year. After all, what’s the point of making great money in the market only to lose it all with one careless click of the mouse.


If you want to generate income from covered calls you have to figure out how much you’d like to make…then work your way backward.


How much do you need to trade?


Let’s say you want to generate an average of $5,000 a month in income. Let’s also say that you are a somewhat conservative investor and you don’t like volatility in your stocks. With that income goal in mind you typically expect to earn between 3-5% a month.


Since we expect to earn 3-5% a month from covered call writing and we expect that 3-5% to generate $5,000 in income, that would mean we would need to have a portfolio of stocks that had a combined value of  $100,000 to about $167,000.


The way we arrive at those numbers is to take the amount we would like to make each month ($5,000) and divide that by the percent we are aiming at (3-5%). This in turn tells us how much money we will need to achieve those returns.


$5,000 / 0.05 = $100,000.    $5,000 / 0.03 = $166,666 (rounded to $167K for ease)


When you sit down and work out the numbers in this manner it really gives you a handle on how to plan your trading strategy and how long it might take you to reach your goal. An important thing to keep in mind here is that this is the ideal scenario. We know that the market seldom moves in just one direction. Along the road to a $100,000 or even a $1 million portfolio are months of getting called out on our covered call positions, bad earning reports that cause our stocks to drop, along with the everyday unpredictability of the market.


Covered call vs. Rental property


One way to think about stock ownership for the purpose of selling calls is to compare it to buying a piece of real estate as income property.


An apartment building is not purchased with the intent to buy and sell it over and over again. It is bought to bring in consistent monthly income by way of each apartment’s rent. Of course the value of the actual building will go up and down with the housing market but those rents from each tenant will continue to come in regardless the value of the actual property.


Covered calls, or owning real estate for that matter are not that cut and dry but it does helps to illustrate the point of this strategy…to acquire an asset that produces a constant cash flow. The cost of the property or the cost of the shares of stock are the price of getting in the game. Once you have the asset, be it stock, real estate or any other investment vehicle, you are on your way to producing income.


When do you really make money?


Of course there are other factors to keep in mind, one being when you will break even.


The first thing you should do when you enter into any investment is to figure out your break even or at what point you will make your money back. This is not only on a trade by trade basis, but on your portfolio as a whole. If you have a $50,000 portfolio you should figure out, based on your average return, when you will make your initial $50,000 back. After you have recouped your initial capital this is the point at which you really start to produce profit. Think of it as the moment when you pay off the mortgage on your investment property.


The moment you generate enough money to cover the initial cost of the stocks you are officially profiting.


I’d love to hear about some of the stocks and trades that you have made to increase your income and profits. Leave a comment below and please share this page.


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  1. Where’s your million dollar challenge? Or maybe could you provide a link? Is doing better than 3-5%/month possible? Thanks.

    • I had to discontinue it when OptionsXpress was bought out by Schwab. I was using OptionsXpress’ practice simulator account to keep a record of the trades.

      3-5% a month is a realistic expectation. You could possible achieve higher returns if you closely monitor the stock volatility to buy your call back before expiration. You might be able to sell multiple covered calls if you actively manage it.

  2. I bought the stock, sold the covered calls and now the stock is $4 over my buy price. I make money selling at the call price + premium, the other side does very well if the stock price remains as is. Expiration is Oct. so my question is can I sell to close the position early and if so do I lose the premium or what are the consequences for exiting early. We both win and move on or do we have to wait it out.

    • Anthony Pietroske

      If you hold the stock until expiration in October and it stays above the strike price you sold the call at, you would keep all of the premium. If you sell the option back before it expires, then you would sell it back at the current ask price. Your initial premium, minus the ask price, minus any commissions would be your profit. It’s up to you whether or not that makes sense. The most money you can make with this trade is the premium received plus any money made by the difference in the strike you sold the call at compared to your initial cost of the stock.

    • Anthony Pietroske

      If you provide actual details you can more easily see the break-even and max profit potential.

  3. I have traded covered calls and options before but over 10 years ago and in the Australian market.

    Can anyone recommend any online course to refresh my memory and do you use a broker to sell your covered calls or do it all online now…and is their any software that you can use to indicate what kind of monthly % return you can get from a particular stock?

    Thanks in advance 🙂

    • Anthony Pietroske


      Congrats on getting back into options and covered call trading. All of the trades are done online. You’ll just need an online brokerage who you are comfortable with and who has low commissions. Most online brokers have some tools in their platform that let you calculate anticipated monthly return. There is service at Born to Sell which has software for picking and calculating covered call return. Although it is a monthly subscription service. I personally haven’t used it so I can’t endorse it.

      I am thinking of creating a course to help get consistent covered call returns. Still in the works though. In the meantime you might want to check out the Options Industry Council, They have a lot of useful info there.

  4. Easy to follow, simple and to the point. Covered calls are a great way to make side income instead of just letting your stocks do nothing.

    • Anthony Pietroske

      Thanks for checking it out Tate. Covered calls are great for side income as well as your main source of income if you know how to trade and invest in them wisely.

      • isn’t a 3% return a month on covered calls a very ambitious target? My average at best has been only 10% a year! I must be doing something wrong? What am I missing?
        Thanks in advance for your help.

        • Anthony Pietroske

          AJ first of all congrats on a 10% yearly return. As long as you are getting a consistent return you are doing great. 3% can be an ambitious target every month. It mostly comes down to analyzing a stock along with it’s options to see what kind of returns can be achieved. Even a 1% monthly return would give you 12% for the year. Check out my million dollar challenge if you haven’t already. My returns so far have been in that range.

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