Calculate covered call returns including premium yield, downside protection, max profit, and annualized return with assignment scenarios.
A covered call trades some stock upside for option premium. Enter the stock value, call strike, premium received, and time to expiration to calculate premium yield, downside protection, maximum profit if the shares are called away, and an annualized return. The common surprise is that the premium provides only a limited cushion. A substantial stock decline can still produce a loss, while appreciation beyond the strike does not increase the position's maximum expiration profit.
A concrete input and expected output from the current implementation.
Input
Stock value: $100.00; call strike: $105.00; premium received: $3.00 per share; days to expiration: 365
Expected output
Premium yield: 3.00%; downside protection: $3.00 per share (3.00%); maximum profit if assigned: $8.00 per share; annualized return if assigned: 8.00%.
The premium yield and cushion are $3 / $100 = 3%. Assignment produces a $5 stock gain plus the retained $3 premium, totaling $8 per share; over 365 days, the 8% holding-period return is also 8% annualized.
Treat the position as long shares plus a short call. For an assigned expiration outcome, profit per share is strike minus the entered stock value plus premium. If the call expires unexercised, profit or loss is ending share price minus the entered stock value plus premium. Above the strike, additional stock appreciation is offset by the call obligation.
Premium yield and downside protection compare the premium with the entered stock value. Maximum profit combines the premium with any stock gain available up to the strike. The annualized figure restates an expiration-period percentage over a one-year horizon using the days entered. It is a comparison rate, not a prediction that the position can be repeated on identical terms.
No. It lowers the effective expiration break-even by the premium received. If shares valued at $100 produce a $3 premium, the break-even is $97 before costs. A finish below $97 still creates a loss, and that loss grows dollar for dollar as the shares fall. The premium does not establish a minimum sale price.
Not with absolute certainty. The assigned case shows the economics if the shares are called away at the strike. An in-the-money call is commonly assigned at expiration, and early assignment can also occur, but the calculator cannot guarantee the holder's exercise decision or final account processing. Near the strike, verify the actual position after expiration.
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