How Much Can You Make Selling Covered Calls?

Most covered-call sellers realistically collect 1–3% of the share value per month in premium — roughly 12–30% a year if you write every month and never miss. But that gross figure overstates what you actually keep: capped upside in rallies and the occasional loss on the stock itself pull the real, net return well below the headline. On a quality, moderate-volatility underlying, a sustainable expectation is closer to a few percent a year above simply holding the shares, not the eye-catching annualized premium number.

The realistic premium range#

The income from one covered call is just the premium you collect divided by the value of the 100 shares it is written against. Sell a one-month call for $1.50 on a $100 stock and you have collected 1.5% for the month. Annualize that — about 18% — and it looks spectacular. That annualized figure is the number most “covered calls pay 20%+” claims are quoting.

It is also misleading, for three reasons covered below. As a working range: 0.5–1.5% per month is typical on low-volatility blue chips and broad ETFs, and 2–4% per month on higher-volatility single stocks — with the higher premium carrying proportionally higher risk of a damaging move.

What drives covered-call income?#

Three levers set your premium:

• Implied volatility. IV is what the option market pays you. Higher IV means fatter premium — but it is pricing a bigger expected move, so you are being paid more because the risk is greater, not for free. Check where IV sits with the IV Rank calculator before you decide a premium is “good.”
• How far out-of-the-money you sell. A strike close to the share price pays the most premium but caps your upside almost immediately and is most likely to be called away. A further strike pays less but leaves room to run. This is the core trade-off of the strategy.
• How often you write. Shorter-dated calls (weekly, monthly) collect more premium per year through faster time decay, but demand more management and expose you to more frequent assignment.

Why does the gross yield overstate your return?#

The annualized premium is a ceiling you rarely reach, for three reasons:

1. Capped upside. When the stock rallies past your strike, the shares are called away and you forfeit the gain above it. In a strong year, that forgone upside can exceed every dollar of premium you collected.
2. Stock drawdowns. The premium cushions a small dip; it does nothing for a large one. A 20% slide in the underlying swamps a year of 1.5%-a-month premium.
3. Not every month is writable. Earnings, gaps and stretches where the premium is too thin to justify capping upside mean you will skip cycles. The “12 months × monthly premium” math assumes a perfection you will not hit.

A worked example#

You own 100 shares of a $100 stock and sell a 30-day call at the $105 strike for $1.50 ($150). Three outcomes:

• Stock flat at $100: the call expires worthless, you keep $150 — a 1.5% month, and you write again.
• Stock rises to $104: call still expires worthless, you keep the $150 and the $400 of share appreciation. Best case.
• Stock jumps to $115: you are called away at $105. You keep the $150 premium plus $500 of appreciation to the strike — $650 — but you forfeit the $1,000 you would have had holding the shares. The premium did not lose you money; the cap did.

How do you estimate your own covered-call income?#

Do not trust a generic “X% a year.” Pull the actual premium for the strike and expiration you would trade, and run it through the Covered Call Calculator to see the static return (stock flat) and the if-called return (stock above the strike) side by side. Compare the strike’s distance to the stock’s expected move so you know how likely the cap is to bite. And if you plan to keep cycling the position after assignment, the round-trip economics are the wheel.