What Happens When a Covered Call Expires?

When your covered call reaches expiration, one of three things happens:

Scenario 1: Expires Worthless (OTM) ✅

If stock price < strike price:

  • Your option expires worthless
  • You keep all your shares
  • You keep the entire premium
  • You can sell another covered call

    • Example: You sold $150 call on AAPL, stock is at $145 at expiration. Result: Keep shares + keep $300 premium. Sell another call Monday.

    Scenario 2: Gets Assigned (ITM) 📤

    If stock price > strike price:

  • Your shares get "called away"
  • You sell 100 shares at the strike price
  • You keep the premium
  • You now have cash instead of shares

    • Example: You sold $150 call on AAPL, stock is at $160 at expiration. Result: Sell shares at $150, keep premium. You miss gains above $150.

    Scenario 3: At-The-Money (ATM) ⚖️

    If stock price = strike price:

  • Could go either way
  • Usually expires worthless if exactly at strike
  • May get assigned if even slightly above

    • What Should You Do Before Expiration?

  • If OTM: Let it expire, sell new call Monday
  • If ITM and want to keep shares: Buy to close or roll
  • If ITM and okay selling: Let it get assigned

    • Pro Tip: Close Early

    Consider closing covered calls at 50-80% profit rather than waiting for expiration. This frees up capital and reduces gamma risk.