Step 1: Symbol
Once you enter the stock ticker, the calculator displays the strike price of an at-the-money option that is three to five months from expiration as a default. If you enter the full option ticker, the calculator displays values for that particular option and underlying security. Enter the stock or option ticker symbol, select the appropriate ticker type and click on Go!
Step 2: Style
By default, American exercise style is set. Most exchange traded stock options in the United States are American-style, meaning they can be exercised any trading day prior to expiration. European exercise style options can only be exercised at expiration. If you are analyzing a stock option, you will likely want American-style.
Step 3: Price
Enter the current or sample price for the underlying security.
Step 4: Quantity
Enter the number of shares for the underlying security (not the number of contracts, but the number of shares). The calculator assumes one contract sold for every 100 shares of the underlying.
Step 5: What If Price
Enter the assumed price for the underlying security at expiration of the option.
Step 6: "Comm. type" and "Comm. amount"
- Select the type and amount of commission you expect to be assessed only for the underlying security. This should not include the commission for the call option (which is done in Step 11).
- Total is a flat dollar commission for the entire underlying portion.
- Rate is a dollar per share commission – if the commission rate was $1 per share and 100 shares were traded, the commission would be $100.
Step 7: Dividends
- Select "Use dividends in P&L calculations" to have the dividends included in the calculations (otherwise dividends will not be included). If the underlying pays no dividends, move to Step 8.
- By default, the Last Date box is set to the next ex-dividend date (confirm ex-dividend dates with your broker).
- Amount Per Share represents the dividends to be paid per share for the specified date. If the firm pays a $1 annual dividend on a quarterly basis, the amount per share would be $0.25.
- Frequency is how often the firm pays the dividend. Most dividend paying stocks in the United States pay quarterly dividends.
Step 8 (right hand column): Exp. Date
Select the expiration month of the option you are analyzing.
Step 9: Days to expiration
Select the number of days until the option expires. This will automatically be set to the number of days left to expiration for the month you select.
Step 10: Strike Price
Enter the strike price of the call option that will be sold to enter into the covered call and the strike price of the put you are buying.
Step 11: Option Premium
Enter the proceeds you expect to receive from selling the covered call to open the short option position. Use the current "bid" price as a starting point. By default, the calculator loads the end of day data from the previous trading session.
Step 12: "Comm. type" and "Comm. amount"
Similar to Step 6. This is the commission charged for the options only, not the stock position. Selecting Total means the total amount of commissions to be assessed. Selecting Rate means a commission rate per share of the underlying security, not a per contract rate. For example, if 10 contracts are traded covering 1000 shares, and the rate was $1, the commission for the options would be $1,000.
Step 13: Margin Interest Rate (%)
Enter the annual percentage rate charged for margin loans. Consult with your broker to determine what rate they will charge for a margin loan. Buying on margin entails additional risks and not all accounts are approved for margin. The calculator retrieves results for purchases paid for in full and for purchases on margin. For margin purchases, the calculator assumes a 50% initial deposit less premiums received from the covered call.
Visit our strategies sections for more information on the Covered Call.