Covered call: what time pays you each day, and what is left above the strike
See how much time income the short call delivers each day at different stock prices, and why a rise to the strike is not the same as max profit.
All figures are Black-Scholes model estimates, not market quotes or guarantees.
US stock and ETF options are American-style and can be exercised at any time. This model treats every option as European and does not model early exercise or assignment.
P&L by price and day (model estimate, current price 100, IV 30%, 30 days)
| Underlying price | Day 0 | Day 7.5 | Day 15 | Day 22.5 | Day 27 | Day 30 |
|---|---|---|---|---|---|---|
| 90 | −$847 | −$839 | −$835 | −$834 | −$834 | −$834 |
| 95 | −$390 | −$367 | −$347 | −$335 | −$334 | −$334 |
| 100 | $0 | +$42 | +$88 | +$137 | +$162 | +$166 |
| 105 | +$289 | +$342 | +$403 | +$482 | +$551 | +$666 |
| 110 | +$471 | +$518 | +$569 | +$626 | +$658 | +$666 |
Structure: 100 shares plus one short call, and why the net debit is close to the stock price
A covered call has two legs: you buy 100 shares and sell one call with a strike of 105 that expires in 30 days. Every number on this page assumes a current price of $100, implied volatility (IV) of 30%, a 4% risk-free rate, no dividends, 30 days to expiration, and one contract (100 shares).
The shares cost $10,000 (or you already own them), and selling the call brings in $1.66 a share, or $166. The net debit is $9,833.80. The option part is a credit; the position as a whole is a debit because of the stock.
The shares cover the short call, so it usually needs no extra margin. Nearly all of the risk comes from the stock itself.
P&L at expiration and the cap: where $666 comes from
- Max profit: $666.20, reached at $105 or above. It is the $500 the shares gain up to the strike plus the $166.20 premium. Above $105, every further dollar on the shares is given up by the short call.
- Max loss: $9,833.80, if the stock goes to zero.
- Breakeven: $98.34, the purchase price minus the premium per share.
Time profile: time helps at every price, but by very different amounts
With no dividends, the next-day change is positive at every price on every day. There is no time-neutral line: time is always on the seller’s side here. The entry Theta is +$5.41 a day (instantaneous).
How much time helps depends on the price. At $105, the short strike, the P&L climbs from +$289 to +$666, and 49% of that gain arrives in the last 7.5 days. At $100 the position earns +$166 over 30 days. At $90 it earns only $13 (−$847 to −$834): the call is already nearly worthless, so there is little time value left to collect, and time can’t make up for the loss on the shares.
Above the strike: the rest of the gain is paid out by time
At $110 on day 0, the position shows +$471, not the +$666 cap. The short call is in the money, and its remaining time value is still a liability for you as the seller. That $195 gap closes only as days pass: +$518 on day 7.5, +$569 on day 15, +$626 on day 22.5, +$658 on day 27.
Above the strike, further gains on the shares are largely offset by the short call. Time is the main thing still working for the position.
How much the premium cushions a drop (entry Delta +68.65 shares)
At entry, the position moves like about 69 shares rather than 100: the short call takes away about 31 shares’ worth of exposure near $100. That softens day-to-day moves, but at expiration the cushion is only the $1.66 premium per share.
At expiration, $95 means −$334 and $90 means −$834. Holding the shares alone, the same prices would mean −$500 and −$1,000.
Try it in the Lab: three experiments
Follow the $110 line (the cursor opens at $110) and see how fast it climbs toward the cap: +$471 on day 0, +$569 on day 15, +$658 on day 27, and +$666 at expiration.
Open in the LabMove the short call’s strike to 110. It brings in $0.66 a share instead of $1.66, the cap rises from $666 to $1,066, and the time gain at $100 over 30 days falls from +$166 to +$66.
Open in the LabThe link opens the time-effect map with the dividend yield set to 4% (with the template’s 0%, time helps at every price). Hatched early exercise zones appear deep in the money: above $125.55 on day 0 and above $110.13 with 1 day left. The whole position still shows a positive next-day change at every price, because the shares accrue about $1.10 a day in dividends, which offsets the short call.
Open in the Lab
Three common misconceptions
MisconceptionOnce the stock rises above the strike, max profit is locked in.
What the numbers showA rise to $110 on day 0 shows only +$471. The remaining $195 arrives with time; by day 27 the position shows +$658.
MisconceptionThe call premium protects you on the way down.
What the numbers showThe cushion is $1.66 a share. At expiration a drop to $95 loses $334 and a drop to $90 loses $834, against $1,000 for the shares alone at $90.
MisconceptionYour short call can’t be assigned before expiration.
What the numbers showThe holder of an American-style call can exercise it at any time, so your short call can be assigned early, most often when it is deep in the money just before an ex-dividend date. The template uses a 0% dividend yield and the model does not include early exercise, so the Lab shows a notice rather than a number.