A covered call is a very popular options trading strategy. Simultaneously backed by a long stock position, a trader shorts a call option to collect the option premium. This provides a limited pre-determined profit on the upside and a varying loss on the downside. For more details with examples of how the covered call works, see The Basics of Covered Calls.
Since a covered call requires multiple positions to be taken at the same time, namely a long position for added security, many brokerage firms offer distinct features in their trading platforms to allow easy order placing for this strategy. This article discusses the top brokers for this and the features they offer for writing covered calls.
Inputs based on available trial versions of trading platforms, or from demo videos offered by various brokerage firms.
- TD Ameritrade thinkorswim: thinkorswim offers its own innovative platform to options traders and remains on the top of the list for the most convenient features to write covered calls and place covered call trades. Once logged in, a trader simply needs to select the underlying (either name or ticker symbol). Then, they will see the list of all available products associated with that ticker. Expanding the “Options” drop-down and then selecting the drop-down under the “Spreads” field allows the trader to directly order placement for “covered calls.”
Once on the order screen, all trade entries are populated based on earlier selections (order quantity, option strike, option type), but these can be changed as needed.
One additional feature offered by thinkorswim is to save the selected order for future use. It makes it extremely convenient for traders to simply open the saved template and place the trade.
- Interactive Brokers (IB) TWS OptionTrader: Interactive Brokers offers a direct order placing facility on their trading platform for covered options. Once inside the IB Option Trader terminal, a trader should generate the option chain on the desired underlying stock or index, highlight the desired option, and then select “Option Spreads.” In the new pop-up that opens up, the trader can select the “Buy Write” option from the “Strategy” drop-down, which instantly displays the payoff function and quantity for each asset traded as part of this covered option strategy:
Going ahead with the order takes a trader to the confirmation screen that also explains the contract contents explicitly:
- OptionsHouse: OptionsHouse's trading platform needs a two-step process for placing a covered call trade order. Traders need to go to the “Options” tab and generate a list of options on the desired underlying. In the top horizontal bar, a trader can click on the bid-ask price button, which opens up the order for the stock.
Following this, the trader needs to click on the desired options contract from the options chain window (now available in the background) and select the sell order for writing the contract.
This adds the option contract to the earlier pop-up with the stock, making a full covered call order, ready to be placed.
The order quantity and other values are pre-populated in applicable multiples (1 call for 100 shares).
- tradeMONSTER: tradeMONSTER offers a convenient mode to place covered calls. In the trading screen, under the options tab for a selected underlying, a trader can click on the “Spread Type” to see a diversified menu that includes “Covereds.”
Once selected, it offers the choice of selecting the strike price from the available option chain. It then moves a trader to the order confirmation page, which shows the risk profile, order contents and bid-ask spread.
- Fidelity: Fidelity’s trading platform offers covered call orders through the “Trade Multi Leg Options” section and “Buy Write” strategy selection. A trader needs to manually input the stock symbol and option symbol in the given fields, along with the respective quantities.
The order confirmation screen offers the available bid/ask prices and order submission:
- TradeStation: TradeStation offers a simple interface to place covered calls. After generating an option chain on the desired underlying, one can simply right click and select “Covered Call":
The next screen offers trade parameters, including quantitative details like spread quote, gain-loss potential, and position Greeks.
The Bottom Line
A covered call is a strategy that involves holding a long position in the underlying stock while simultaneously writing a call option. Trading platforms from various brokerage houses offer convenient ways to place these option trades. Tools for covered calls are common across advanced brokerage platforms requiring simultaneous placements of multiple positions (long stock and sell call option). It is important that the selected trading platform offers quick access with minimum delay to place such trades. This can also increase the potential for gains. Traders should thoroughly inquire and test the trial versions before subscribing to any brokerage firm trading platform with the intention of focusing on covered calls.