How to Calculate Covered Call Returns

Here are the key formulas for covered call returns:

1. Static Return (Premium Only)

If stock price stays flat:

Formula: Static Return = Premium / Stock Price × 100

Example:

  • Stock price: $100
  • Premium: $3
  • Static Return = $3 / $100 = 3%

    • 2. If-Called Return

    Total return if shares are called away:

    Formula: If-Called Return = (Premium + Strike - Stock Price) / Stock Price × 100

    Example:

  • Stock price: $100
  • Strike: $105
  • Premium: $3
  • If-Called = ($3 + $105 - $100) / $100 = 8%

    • 3. Annualized Return

    Compare different expirations:

    Formula: Annualized Return = Return × (365 / Days to Expiration)

    Example:

  • Static Return: 3%
  • Days to Expiration: 30
  • Annualized = 3% × (365/30) = 36.5%

    • 4. Breakeven Price

    Price where you neither gain nor lose:

    Formula: Breakeven = Stock Price - Premium

    Example:

  • Stock price: $100
  • Premium: $3
  • Breakeven = $100 - $3 = $97

    • Quick Calculator

    For a $100 stock with $3 premium and $105 strike (30 days):

    | Metric | Value | Static Return3.0% If-Called Return8.0% Annualized (Static)36.5% | Breakeven | $97 |

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