Can You Sell Covered Calls On Robinhood?


Can You Sell Covered Calls On Robinhood?

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Many investors enjoy working with different strategies to make a profit. One of these options is selling a covered call. 

If you prefer this type of strategy, then you’ll want to know if you can do it on Robinhood.

You can sell a covered call on Robinhood. You can sell one anytime before the expiration date at any strike price you choose. With a single covered call contract, you can sell an option for 100 shares of the underlying stock. 

Selling covered calls is a good way to generate income with your stock shares that you own. Some people will even buy a stock just to sell covered calls on it and make an income. 

In this article, I’ll cover how you can sell covered calls on Robinhood, the benefits of selling covered calls, and more. Essentially, if you enjoy using this strategy, you should be able to do that easily on the Robinhood platform.

To see the most popular books about covered call strategies just click here. 

Selling Covered Calls On Robinhood

Robinhood makes it very easy to sell covered calls. The site also allows you to sell these options regularly, so you shouldn’t have any problems doing it over and over again on the same stock (assuming it isn’t called away from you). 

You will need to make sure that you have enough shares of the underlying stock to cover the option possibly being exercised. This is why it’s called a covered call since you own the shares to back up the call that you sold. 

If you’re a day trader, you can only make three trades every five days. If you make a fourth trade, Robinhood marks your account as a pattern day trader. This amount of trades may not be enough for some traders – it depends on your style. 

The platform can block your trades if this happens.

However, you can still easily sell your covered calls on the site. When selling covered call options, you should expect a flat or slightly bullish market and use this strategy that accounts for it. This YouTube video explains how to sell your covered calls on Robinhood, with beginners in mind:

How To Sell Covered Calls On Robinhood

You may be wondering how you can sell covered calls on Robinhood. Luckily, it’s a relatively straightforward process and only takes a few minutes long as you have the shares to sell the calls against. 

Many traders go through with these sales every single day.

Robinhood uses a unique process that helps to reduce the risks of loss, although it doesn’t remove it altogether. If you’re a beginner, you’ll still need to make sure that you do your research first. 

That way, you won’t risk more than you’re comfortable with.

If you want to sell covered calls on the site, make sure to use these steps:

  1. Open Robinhood
  1. Find the covered call options you want to sell
  1. Tap on the trade button and enter how many contracts you plan on selling (remember one contract is for 100 shares) 
  1. Tap on Preview to quickly view everything that you’re selling
  1. Click on Submit when you’re ready and sure everything is correct
  1. Wait to receive your funds

Several professional traders recommend that you trade your options an hour before the close of day on Robinhood. This method gives you enough time to work through all of the above steps and receive money before the market closes. 

When you sell your covered call through Robinhood, you’re selling the right to purchase your underlying stock to someone else. So, you will need to have 100 shares of the underlying stock per option contract that you sell for Robinhood to perform the trade for you.  

How To Close Robinhood Covered Calls

There are more techniques that you can use to close your covered call on Robinhood. Many people allow the calls to expire since they get to keep the premium. You can also let the platform assign the call if it goes into the money. 

If you’re unsure of what to do, Robinhood provides many options for you. You’ll want to check out the contracts section on your account. From there, you can view all the covered calls that you have. You can follow the directions on the site to close the contracts.

As a general rule, you can close your options contracts by doing the opposite of what you did to open them. For example, buying to close the contract means you are buying the contract back that you sold so you can keep the stock. 

Buying back an option can be good if it is only slightly in the money at expiry as you can then sell another covered call for the next month out rather than having the charges called away from you. 

Options Levels On Robinhood

Robinhood has three different levels for option trading strategies on its platform. Each level has various techniques that you can use to earn a higher income. However, you first need to receive approval from Robinhood. 

You start at level one, then go up to three as you gain more experience in trading options.

To use covered calls in your portfolio, you need to be at least at level two. To raise your level, you’ll need to do the following steps:

  1. Click Account
  2. Open Settings
  3. Opens Options Trading
  4. Click on Enable
  5. Answer the questions to receive approval

If you’re not approved right away, you’ll want to try making more trades. When it’s been a few days, you can always try again to receive approval.

Benefits of Selling Covered Calls

If you’re interested in covered calls, it’s good to know that they come with plenty of benefits. According to Investopedia, selling your covered call options helps offset a lot of the risks associated with trading options. 

Many traders also use them because they can sell and still keep the premium received. Those who use this benefit most often usually sell covered calls very frequently. If you want to profit from keeping the premium, then covered calls benefit you the most.

When you sell covered calls, you can also buy the stock simultaneously to lower your expenses. This method is known as a buy-write, which you can also do on Robinhood.

If you need to learn more about selling covered calls, I recommend that you read Freeman Publications’ Covered Calls for Beginners. This book provides details on ways to double your monthly cash flow and get the most from the premiums.

Final Thoughts

To summarize, you can sell covered calls through Robinhood. You’ll want to consider all your options and make sure this strategy works for you. 

Sometimes, other options might work better depending on the market conditions and what you expect a particular stock to do. 

Overall, selling covered calls on Robinhood is very low-risk. The platform helps navigate risks, while covered calls are also already pretty low-risk. 

If you’re looking for a site to sell your covered calls on, Robinhood could be an excellent choice for you!

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