Selling covered calls on Fidelity is an easy way to generate passive income from your long stock positions without selling your shares.
It’s simple to do but there is a small learning curve to understand how call options work and the benefits of selling covered calls.
What are the Benefits of Selling Covered Calls on Fidelity?
- Earn Extra Income: Selling covered calls generates easy income without selling your shares and triggering capital gains taxes. I use my covered call income to reinvest in more shares, pay bills, or invest in Bitcoin.
- Generate Yield from Non-dividend paying stocks: I love growth stocks but they don’t generate passive income like dividend stocks. Selling covered calls gives you income even though the company doesn’t pay a dividend.
- Sell your shares at a profit automatically: Every once in a while, your shares will go up past your chosen strike price and be called by Fidelity. Selling covered calls is a simple exit strategy to dump your shares and collect an extra premium as icing on the cake.
Read my complete guide explaining my covered call strategy in-depth.
Selling Covered Calls on Fidelity: Step by Step
In this tutorial, I will show you step by step how to sell covered calls on the Fidelity app.
1. Create a Fidelity Account or Login Your Existing Portfolio
Go to Fidelity.com and create a Fidelity traditional or IRA account to get started. It takes around 2 to 3 days for your account to get approved.
If you already have a Fidelity account, then download the Fidelity app on your smartphone or log into your account via desktop using your username and password.
2. Pull Up The Quote of The Underlying Stock
Once logged in, type in a NASDAQ or NYSE stock ticker to check out the underlying stock options chain.
If you previously purchased at least 100 shares in any NASDAQ or NYSE stock then go to your portfolio and see if the stock has an options chain.
3. Buy At Least 100 Shares (If You don’t already own shares)
If you already own at least 100 shares of the stock then skip this step.
If not, buy at least 100 shares of the stock using a market or limit order. Remember that every 100 shares represent 1 options contract.
4. Open the Options Chain
Scroll down the quotes page and tap the “Options Chain” like to see the current call and put prices.
5. Select the Desired Details
Choose a strike price and expiration date based on your income goals and risk tolerance.
Type in the number of contracts you wish to sell and tap “Sell to Open”.
6.Choose Between Market or Limit Orders
Market orders get executed at the last options price, which is in between the most recent bid and ask.
Limit orders will only execute if the options contract reaches your desired price.
7. Execute the Trade and Collect Your Premium
Preview your order and ta “confirm” to place your options trade. You will collect your premium immediately after the trade is executed.
Your funds will be available to trade right away unless you have a trading restriction on your account.
Options contracts settle within 1 business day so you will be able to withdraw the funds after midnight during early morning hours of the next day.