How do I pick the right strike price for a covered call?

Picking the right strike price for a covered call comes down to one question: how much upside are you willing to give up in exchange for premium? Get that answer right, and the rest of the decision falls into place pretty naturally.

Let's say you own 100 shares of AAPL at $185 and you want to sell a covered call. You've got a few realistic choices — maybe the $187.50 strike, the $190, or the $195 — and each one tells a different story about what you expect from the trade.

The Delta Anchor

Most experienced wheel traders think in terms of delta when choosing strikes. Delta approximates the probability that the option expires in the money, so a 0.30 delta call means there's roughly a 30% chance your shares get called away. Flip that around: you've got about a 70% chance of keeping your shares and pocketing the premium.

For covered calls, most traders work in the 0.20–0.35 delta range. That's not a rule carved in stone — it's just where the math tends to make sense. You're collecting meaningful premium without selling a strike so close to the current price that you cap your upside aggressively.

On AAPL at $185, a 0.30 delta call expiring in 30–45 days might land around the $192–$195 range depending on implied volatility at the time. You'd collect maybe $1.80–$2.50 per share, or $180–$250 per contract. That's real money for doing nothing except agreeing to sell your shares at a price you'd already be happy with.

What Your Cost Basis Actually Changes

Here's where a lot of people mess this up. If you're running the wheel, your cost basis on those AAPL shares isn't necessarily $185. Maybe you got assigned at $180 after selling a cash-secured put, and you've already collected $2.20 in premium from that trade. Your real cost basis is closer to $177.80.

That changes everything. Now a $190 covered call isn't capping your upside at $5 above your purchase price — it's locking in a $12.20 gain per share if you get assigned, plus whatever premium you collect on the call. Suddenly that "conservative" strike looks pretty good.

Always run the numbers from your actual cost basis, not the current share price. It sounds obvious but in the moment, especially when a stock has moved against you, people forget.

The Earnings Trap

Selling covered calls into earnings is a separate conversation, but you need to know it's a trap for a lot of intermediate traders. Implied volatility spikes before earnings, so the premium looks juicy. NVDA before an earnings report might show $8–$12 of premium on a 30-delta call that normally pays $3. Tempting.

The problem is that if NVDA rips 15% on earnings — which it absolutely does sometimes — your shares get called away at your strike and you miss the entire move. You collected $8 but left $40 on the table. That's not a win, even if it technically was profitable.

My personal approach: I don't sell covered calls in the week before earnings on high-volatility names. I'll wait for the report, let the IV crush happen, and then sell the next cycle. You give up one month of premium but you keep your optionality on a big move.

When to Go Closer vs. Further Out

If your goal is income and you're neutral-to-slightly-bullish on the stock, staying in that 0.25–0.30 delta range makes sense. You're selling a strike you'd genuinely be okay getting assigned at, collecting decent premium, and moving on.

If you're more bullish — say you bought NVDA specifically because you think it's going to run — you might go out to 0.15 delta or even lower. You're collecting less premium, but you're giving yourself more room to participate in upside. The tradeoff is real: a 0.15 delta call on NVDA might pay $1.50 where a 0.30 delta call pays $3.50. You're cutting your income roughly in half to keep more of the potential gain.

There's no universally correct answer here. It depends on why you own the shares and what you're trying to accomplish with the position.

The Strike You'd Actually Be Happy Getting Assigned At

This is the gut-check I use before every covered call. Look at the strike you're about to sell. If you got assigned there — if someone exercised that call and took your shares at that price — would you be genuinely fine with it? Not reluctantly okay, but actually fine?

If the answer is yes, sell the call. If you're thinking "well, I guess that's acceptable," stop and reconsider. That hesitation usually means you're too bullish on the stock to be selling covered calls on it right now, or you're choosing a strike that's too close to current price.

The wheel strategy works because every decision in it should be one you'd be comfortable with at expiration. Covered calls are no different.

This week, pull up your current stock holdings and find the 30-delta call expiring in 30–45 days. Calculate what your return would be if you got assigned, using your actual cost basis. If that number makes you smile, you've found your strike.