Covered calls on a stock you do not want to sell

You can push assignment risk down a long way by writing far out of the money and short dated, but you cannot get it to zero, and the premium falls faster than the risk does. If parting with the shares would genuinely upset you, the right number of contracts to write is often fewer than you own.

This is the most common real situation in covered calls and most guides answer the wrong question. They tell you how to pick a safe strike. The question worth asking first is whether you should be writing calls on this position at all.

Start here: is this actually a covered call candidate

Three cases where the answer is no.

A large embedded gain in a taxable account. Assignment is a sale and a sale is a taxable event. If you hold shares at a $40 basis now trading at $180, being called away triggers a bill that dwarfs a year of premium. The premium is not worth the tax.
A concentrated position you hold for a thesis. If you own it because you think it doubles, capping at plus 8 percent is working against your own reason for owning it.
The single stock your retirement rests on. Covered calls do almost nothing for downside risk. If the position is too big, the fix is trimming it, not writing calls against it.

If it survives that, here is how to lower the odds

Go further out of the money. Obvious and effective. A 0.10 delta call gets assigned roughly one time in ten. The cost is that the premium collapses: on the KO example, moving from the $75 strike to the $80 strike might take you from $0.62 to $0.11. You cut the risk by more than half and cut the income by more than 80 percent.

Shorten the expiry. Less time is less chance to travel. The catch from the expiry page applies: weekly gamma means a strike that looked safe on Monday can be in the money by Thursday, and you are making the decision 52 times a year instead of 12.

Avoid the catalyst windows. Do not let the expiry straddle earnings. Do not write across a known product launch or a court date. Most large assignments trace back to a scheduled event somebody did not check.

Write on part of the position. The move nobody mentions. If you own 500 shares, write two contracts, not five. Now 60 percent of your position keeps its full upside and you still collect income. This is the single best answer to "I want premium but I do not want to lose the shares" and it barely appears in the literature because it is unglamorous.

You can always buy it back

Assignment is not something that happens to you without warning at expiry. If the stock runs and you want to keep the shares, buy the call back. That costs money, sometimes a lot, and the calculation is simple: if buying it back costs less than the upside you keep, do it.

Two honest caveats. Buying back a call that has gone deep in the money can cost several multiples of the credit you collected, so this is an expensive escape hatch. And early assignment can take the decision away from you before expiry, most often the day before an ex-dividend date when the remaining time value in the call is smaller than the dividend. That is covered in covered calls and dividends, and it is the one case where assignment genuinely arrives without you getting to react.

The uncomfortable summary

There is no strike that pays meaningful premium and carries no assignment risk. The premium is the assignment risk, priced. Anyone offering you the first without the second is either misunderstanding the trade or selling something.

If you would be genuinely upset to lose the shares, write fewer contracts, further out, and skip the months where the calendar is busy. Accept a smaller number. That is a real strategy. Chasing a 0.30 delta premium on a position you cannot bear to part with is not.

OptionsKing scores every candidate strike on a deterministic 0 to 100 scale and shows you nothing below 60, at any setting, with 75 the recommended bar. How it works covers what that guarantees.

Questions people actually ask

What delta is safe enough to keep my shares?

Nothing is safe. A 0.10 delta call still gets assigned about one time in ten, which over a year of monthly writes is more likely than not to happen at least once. Size the position on the assumption it will happen.

Can I cancel a covered call?

You cannot cancel it, but you can buy it back at the market price at any time before assignment. If the stock has risen sharply that will cost much more than you received.

Does writing calls on part of my position still make sense?

Yes, and it is underrated. Writing two contracts against 500 shares keeps 60 percent of your upside intact and still generates income. Your yield on the whole position is lower, which is the honest price of keeping the upside.

Keep reading

Do the math on your own trade

Every price in this article is an illustrative worked example, not a quote. Read Covered calls for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.