Feeling a little adventurous with your investments? Ready to explore a strategy that can potentially generate income from stocks you already own? Then you're in the right place! We're diving deep into the world of covered calls on Webull, a powerful yet often misunderstood options strategy. Get ready to learn how to potentially boost your portfolio's returns.
What Exactly is a Covered Call?
Before we jump into the "how-to," let's quickly demystify what a covered call is. Simply put, a covered call involves owning at least 100 shares of a particular stock and then selling (also known as "writing") a call option contract against those shares.
You own the stock (long position): This is the "covered" part. You already possess the shares you might have to sell.
You sell a call option (short position): A call option gives the buyer the right, but not the obligation, to buy 100 shares of the underlying stock from you at a specific price (the strike price) on or before a specific date (the expiration date).
You receive a premium: For selling this right, you get paid a sum of money upfront, called the premium. This is your immediate income.
The Goal: The primary aim of a covered call is to generate income (the premium) from your existing stock holdings, especially if you expect the stock's price to be neutral or slightly bullish in the short term. It's a way to enhance your returns beyond just holding the stock, while also giving you a potential exit strategy at a price you're comfortable with.
Understanding the Risks and Rewards
While covered calls are considered a relatively conservative options strategy, they do involve trade-offs:
Maximum Profit: Your maximum profit is limited to the premium received plus any appreciation in the stock price up to the strike price. If the stock soars above your strike price, you forfeit any gains beyond that point, as your shares will likely be "called away" (exercised) at the strike price.
Downside Protection: The premium you receive offers some downside protection. If the stock price falls, the premium helps offset a portion of your losses. However, you still face the full risk of owning the stock; if the stock plummets, your losses can exceed the premium.
Opportunity Cost: By selling a covered call, you give up the potential for unlimited upside if the stock rallies significantly.
Now that we've covered the fundamentals, let's get into the step-by-step process of implementing covered calls on Webull!
Step 1: Ensure Your Webull Account is Ready for Options Trading
Have you ever thought about how you can leverage your existing stock holdings for additional income? Well, before you can sell covered calls, you need to make sure your Webull account is set up for options trading.
Sub-heading: Eligibility and Application Process
Webull, like all brokers, has specific requirements for options trading due to the inherent risks. You'll need to apply for options trading privileges within the app.
Open the Webull App: Log in to your Webull account on your mobile device.
Navigate to Account Settings:
Tap on the "Menu" icon (usually located in the bottom right corner of the app).
Scroll down and tap on "Settings" or your profile icon.
Look for "Manage Brokerage Account" and tap on it.
Select "Options Trading."
Complete the Application:
You'll be prompted to enter your trading password.
You'll then see an "Options Trading" section. Tap to open it.
You'll be asked a series of questions about your trading experience, financial situation, and investment objectives. Be honest and accurate in your responses, as these determine your options trading approval level. For covered calls, you typically need Options Level 1 approval.
Tick any necessary fields and tap "Submit."
Wait for Approval: Your application will be reviewed by Webull. This process can take anywhere from a few hours to a couple of business days. You'll receive a notification once your application is approved or if more information is needed. Remember, you must typically be at least 21 years old to enable options trading on Webull.
Sub-heading: Funding Your Account
While covered calls rely on owning the underlying stock, you still need to ensure your account is funded. Webull offers various deposit methods:
ACH Deposit: This is generally the most common and often instant for certain conditions, otherwise 3-4 business days.
Wire Transfer: Fastest but may involve fees.
Micro-deposits: Typically takes about one business day.
There's no required minimum deposit for a standard Webull account, but promotions for new users often involve depositing a certain amount.
Step 2: Identify Suitable Stocks for Covered Calls
Now that your account is ready, the next crucial step is choosing the right stock. This isn't just about picking any stock you own; it's about selecting stocks that align with the covered call strategy.
Sub-heading: Qualities of a Good Covered Call Candidate
You Already Own 100+ Shares: This is fundamental. You must own at least 100 shares (or multiples of 100, e.g., 200, 300) for each options contract you plan to sell.
Neutral to Slightly Bullish Outlook: This is key! Covered calls perform best when the stock price is expected to stay relatively stable or experience a modest increase up to your chosen strike price. If you expect a massive rally, you might miss out on significant gains. If you expect a sharp decline, the premium might not offset your stock losses.
High Implied Volatility (but not too high): Higher implied volatility generally means higher premiums. However, extremely high volatility can also indicate higher risk and unpredictable price swings, which might lead to your shares being called away at an undesirable price or the stock plummeting. Look for stocks with moderate to elevated implied volatility.
Stable or Established Companies: While not a strict rule, many investors prefer selling covered calls on companies they are comfortable holding long-term, even if the option expires out-of-the-money. This reduces the stress of rapid price movements.
Avoid Stocks with Impending Catalysts (Unless You Know What You're Doing): Upcoming earnings reports, drug trial results, or major news events can cause significant price swings, making covered calls riskier. Unless you have a strong conviction and are prepared for the outcome, it's often best to avoid these periods.
Sub-heading: How to Research Stocks on Webull
Webull provides excellent tools for researching stocks:
Search for the Stock: Use the search bar at the top of the app to find the stock you're interested in (e.g., "AAPL" for Apple).
Analyze the Stock Details:
Charts: Look at the historical price action. Is it trending sideways, slightly up, or down?
News & Analysis: Check recent news, analyst ratings, and company fundamentals to form your outlook.
Financials: Review the company's financial health.
Check Your Holdings: Confirm that you own at least 100 shares of the chosen stock. You can see your holdings in the "Accounts" section.
Step 3: Access the Options Chain on Webull
Once you've identified a suitable stock, it's time to dive into the options chain, where all the action happens.
Navigate to the Stock's Detail Page: After searching for your desired stock (e.g., AAPL), you'll land on its detailed quote page.
Tap on "Options": You'll see several tabs like "Quotes," "Charts," "News," and one prominently labeled "Options." Tap on this.
Understand the Options Chain Layout:
The options chain will display a list of available options contracts for that stock.
You'll typically see columns for Expiration Dates, Strike Prices, Calls (left side), and Puts (right side).
Focus on the "Calls" section for covered calls.
Sub-heading: Key Elements of the Options Chain
Expiration Date: This is the date the option contract expires. You'll see various expiration dates, from weekly to monthly to LEAPS (Long-term Equity AnticiPation Securities). For covered calls, many traders prefer shorter-term expirations (e.g., 1-4 weeks) to collect premiums more frequently.
Strike Price: This is the price at which the option buyer has the right to buy your shares. When selling covered calls, you generally want to choose a strike price that is above the current stock price (Out-of-the-Money or OTM) if you want to keep your shares and simply collect the premium. If you're willing to sell your shares at a certain price, you might choose an At-the-Money (ATM) or In-the-Money (ITM) strike, though this means a higher chance of assignment.
Bid and Ask Prices:
Bid: The highest price a buyer is currently willing to pay for the option. This is approximately the premium you will receive when selling a covered call.
Ask: The lowest price a seller is currently willing to accept for the option.
The difference between Bid and Ask is the "spread." You'll execute your sell order closer to the bid price.
Open Interest (OI) & Volume:
Open Interest: The total number of outstanding contracts for a particular strike and expiration. Higher OI indicates more liquidity.
Volume: The number of contracts traded during the current day. Higher volume also indicates more liquidity. Aim for options with decent liquidity to ensure easier execution.
Greeks (Delta, Gamma, Theta, Vega): While a full explanation is beyond this step, these are important metrics:
Delta: Estimates how much the option price will change for a $1 move in the underlying stock.
Theta: Represents the time decay of the option's value. As time passes, the option loses value, which is beneficial for option sellers.
Implied Volatility (IV): Webull often shows IV. Higher IV generally means higher premiums.
Step 4: Selecting Your Covered Call Contract
This is where you make the critical decisions for your covered call trade.
Choose an Expiration Date:
Consider your outlook: If you expect the stock to be stable for a short period, a nearer-term expiration (e.g., 1-2 weeks) might be suitable for frequent premium collection.
Balance premium and risk: Shorter-term options have higher theta decay (good for sellers) but also react more quickly to price changes. Longer-term options offer more premium but tie up your shares for longer.
Tap on the desired expiration date from the list in the options chain.
Select a Strike Price:
This is the price at which you are willing to sell your 100 shares.
Out-of-the-Money (OTM) Strike: If you want to keep your shares and simply collect income, choose a strike price above the current stock price. This provides a buffer for the stock to increase without you losing your shares. The further OTM, the less premium you receive, but the lower the chance of assignment.
At-the-Money (ATM) Strike: If you are indifferent to selling your shares and want to maximize premium, you can choose a strike price very close to the current stock price. This yields a higher premium but a much higher chance of assignment.
In-the-Money (ITM) Strike: While less common for income-focused covered calls, choosing an ITM strike means you collect a higher premium, but you're almost guaranteed to have your shares called away at a price lower than the current market price, effectively selling your shares for an immediate loss on the stock itself, offset by the premium. This is more of a "sell to exit" strategy.
Tap on the desired strike price from the "Calls" section of the options chain.
Review the Premium: Once you tap on a strike price, Webull will show you the details of that specific contract, including the bid price. This bid price (multiplied by 100, as one contract represents 100 shares) is the premium you will receive.
Step 5: Placing the Covered Call Order on Webull
You've made your selections; now it's time to execute the trade!
Sub-heading: Configuring Your Order
Order Entry Screen: After selecting the strike price, Webull will take you to the order entry screen for that specific option.
Action: "Sell to Open":
Crucially, ensure the action is set to "Sell" and the order type is "Open" (or "Sell to Open"). You are opening a new short options position.
Strategy Type: "Covered Call": Webull often automatically recognizes that you own the underlying shares and may pre-select "Covered Call" as the strategy. Verify this.
Number of Contracts: Input the number of contracts you wish to sell. Remember, one contract is 100 shares. So, if you own 300 shares, you can sell up to 3 contracts.
Order Type:
Limit Order (Recommended): This allows you to specify the exact premium price you want to receive. It ensures you don't sell for less than your desired amount. Enter your desired "Limit Price" (the premium per share). This should be near the current bid price.
Market Order (Use with Caution): This executes your trade immediately at the best available market price. While fast, you might receive a less favorable premium, especially for less liquid options. Generally, avoid market orders for options.
Time in Force:
Day: The order is only active for the current trading day. If it doesn't fill by market close, it's canceled.
Good Till Canceled (GTC): The order remains active until it's filled or you cancel it (up to 60 days on Webull).
Review Your Order: Double-check all the details:
Stock Symbol
Expiration Date
Strike Price
Call or Put (ensure it's a Call)
Sell to Open
Number of Contracts
Limit Price
Estimated Premium Received
Sub-heading: Confirming and Placing the Order
Once you're satisfied with your order details, tap the "Confirm" or "Place Order" button. Webull will provide a final confirmation screen. Review it one last time and then "Submit" your order.
Your order will then be sent to the exchange. You can monitor its status in the "Orders" section of your Webull account. If it doesn't fill immediately, you might need to adjust your limit price slightly closer to the bid or wait for market conditions to change.
Step 6: Managing Your Covered Call Position
Selling a covered call isn't a "set it and forget it" strategy. Active management can help you maximize profits or mitigate losses.
Sub-heading: Potential Scenarios and Actions
Stock Price Stays Below Strike Price (Ideal Scenario):
If the stock price remains below your strike price by expiration, the call option will expire worthless. You keep the entire premium, and you still own your shares.
Action: You can then sell another covered call on the same stock for a new expiration date, collecting more premium. This is known as "rolling" the covered call.
Stock Price Rises Above Strike Price (Assignment Risk):
If the stock price moves above your strike price, there's a high probability your shares will be "called away" (assigned) at the strike price. This means you sell your 100 shares for the strike price, and you keep the premium.
Action:
Let it be assigned: If you're happy selling your shares at the strike price, simply let the option expire and your shares will be sold.
Buy back the call: If you want to keep your shares or believe the stock will go even higher, you can buy back the call option to close your position. This will cost you money (the current option price), which will offset some or all of your initial premium.
Roll the option: You can "roll up and out" – buy back your current call and sell a new call with a higher strike price and a later expiration date. This aims to collect more premium and potentially give the stock more room to run, but it also extends your obligation.
Stock Price Falls (Mitigating Losses):
If the stock price falls significantly, the call option will likely be far Out-of-the-Money and might not be assigned. However, you're still losing money on your underlying stock. The premium provides some buffer.
Action: You can let the option expire worthless. You keep the premium, but you're still holding a losing stock position. Alternatively, you could consider selling the stock if your conviction has changed, though this would mean closing both the stock and option positions.
Sub-heading: Monitoring Your Position on Webull
Portfolio Section: Go to your "Accounts" or "Portfolio" section on Webull.
Options Tab: You'll see a separate section or tab for your options positions. Here you can monitor:
Current P/L (Profit/Loss): How much your option position is currently up or down.
Break-Even Price: The stock price at which your total profit/loss is zero (stock purchase price - premium + strike price).
Greeks: See how Delta, Theta, etc., are affecting your option's value.
Set Alerts: Webull allows you to set price alerts for your stock and options, so you're notified of significant movements.
Step 7: Closing or Rolling Your Covered Call (If Needed)
Deciding when and how to close or roll your covered call is an important part of maximizing this strategy.
Sub-heading: When to Close Your Covered Call
Option Value Degraded Significantly: If the option has lost most of its value (e.g., 80-90% of the premium you received), it often makes sense to buy it back to lock in your profit and free up your shares to sell another covered call. The remaining premium on the option might not be worth the risk of holding it until expiration.
Change in Stock Outlook: If your outlook on the underlying stock changes (e.g., you suddenly expect a massive rally and don't want to miss out, or a significant decline and want to sell your stock), you might close the covered call.
Impending Earnings/Events: As mentioned, if a major catalyst is approaching and you want to reduce risk, closing the covered call can be an option.
Sub-heading: How to Close or Roll Your Covered Call
Navigate to Your Options Position: In your Webull portfolio, find the covered call position you want to manage.
Tap on the Option Contract: This will open a detailed view of the contract.
"Buy to Close":
Tap on the "Trade" button, and then select "Buy" and "Close" (or "Buy to Close"). You are buying back the option you initially sold.
Use a limit order to specify the maximum price you're willing to pay to close the contract. Aim for a price close to the current ask price.
Confirm and submit the order.
"Rolling" a Covered Call (Buy to Close, Sell to Open):
Rolling typically involves two simultaneous orders:
Buy to close your existing covered call.
Sell to open a new covered call with a different strike price (usually higher) and/or a later expiration date.
Some platforms, including Webull, may have a "Roll" feature that allows you to execute both legs of the trade as a single, combined order. This can be more efficient.
When rolling, you are usually aiming to collect a net credit (meaning the premium from the new call is greater than the cost to buy back the old one), or at least a small debit if you're rolling up and out to give the stock more room.
10 Related FAQ Questions
Here are 10 frequently asked questions about covered calls on Webull:
How to get approved for options trading on Webull?
You need to navigate to "Menu" -> "Settings" -> "Manage Brokerage Account" -> "Options Trading" in the Webull app, complete the application questions honestly about your financial situation and trading experience, and then submit for approval.
How to find suitable stocks for covered calls on Webull?
Look for stocks you already own (at least 100 shares), that you have a neutral to slightly bullish outlook on, and that exhibit moderate implied volatility. Use Webull's research tools, charts, and news feeds to analyze potential candidates.
How to read the options chain on Webull for covered calls?
Once on a stock's detail page, tap "Options." Focus on the "Calls" side, looking at different expiration dates, strike prices (typically out-of-the-money for income), bid/ask prices (premium you'll receive), and liquidity (open interest and volume).
How to select the right strike price for a covered call?
Choose an out-of-the-money (OTM) strike price if you want to maximize premium while minimizing the chance of assignment and keeping your shares. If you're willing to sell your shares, a closer-to-the-money (ATM) or slightly in-the-money (ITM) strike will yield a higher premium but increases the likelihood of assignment.
How to choose the best expiration date for a covered call?
Shorter-term expirations (1-4 weeks) are popular for covered calls as they allow for more frequent premium collection and benefit from faster time decay (Theta). Balance your outlook with the premium offered for different expiration cycles.
How to place a "Sell to Open" covered call order on Webull?
After selecting the specific call option from the options chain, set the action to "Sell" and order type to "Open." Input the number of contracts (multiples of 100 shares you own) and use a "Limit" order to specify your desired premium.
How to avoid assignment when selling covered calls?
To avoid assignment, you can buy back your covered call before the stock price rises significantly above your strike price, or before expiration if the option is in-the-money. This will cost you money, potentially reducing or eliminating your premium profit.
How to "roll" a covered call on Webull?
Rolling involves simultaneously buying back your existing covered call (to close the position) and selling a new covered call (to open a new position) with a different strike price (often higher) and/or a later expiration date. Webull may have a dedicated "Roll" feature, or you can execute this as two separate but linked trades.
How to close a covered call position on Webull?
To close a covered call, go to your options positions in your Webull portfolio, tap on the specific covered call contract, and select "Buy to Close." Use a limit order to specify the maximum price you're willing to pay to buy it back.
How to calculate the maximum profit of a covered call?
The maximum profit for a covered call is the premium you received plus any appreciation in the stock price from your purchase price up to the strike price. If the stock is called away, your profit is: (Strike Price - Original Stock Purchase Price) + Premium Received.