How to Close a Covered Call

Covered calls are a popular strategy among investors who want to generate income from stocks they already own. At its core, a covered call involves selling a call option against a long stock position. In exchange for collecting a premium, you agree to sell your shares at a specified strike price if the option is exercised.

This approach works well in sideways or mildly bullish markets. But like any trade, it requires active management — especially as the option approaches expiration.

What is a Covered Call?

Let’s say you own 100 shares of XYZ, currently trading at $180. You sell one call option with a $190 strike price, expiring in three weeks, and collect $2.00 per share in premium ($200 total).

This trade caps your upside at $190 (plus the $2.00 premium), but it gives you immediate income.

Now the question is: Do you hold the position until expiration, or close it early

What are some reason Traders close Covered Call Before Expiration?

There are several scenarios where closing early may make sense:

Avoiding Assignment

If the stock price rises well above your strike price and you let it expire, your shares will likely be called away. If you prefer to keep the stock, closing the position preemptively allows you to retain ownership.

Rolling the Position

Rolling means moving the trade to a different strike or expiration. This can help you extend the trade or adjust your exposure without losing your stock position. 

Changing Market Conditions

If volatility drops sharply or your market thesis changes, closing your covered call position early can allow you to reassess your outlook.

What Happens If You Do Nothing?

If the option expires out-of-the-money (i.e., the stock closes below your strike), the option will simply expire worthless, and you keep both the shares and the premium. There’s nothing to close the trade automatically resolves on its own.

If the option expires in-the-money, your shares will likely be called away. You’ll sell them at the strike price and realize a profit, but your upside is capped.

If you're using IBKR, it’s important to know that assignment is an automated process unless you intervene. Review your portfolio near expiration and decide whether you’re comfortable with the stock being sold.

How to Close a Covered Call on IBKR

If you've decided to close your covered call before expiration, you’ll need to buy back the same option you originally sold.

Using the Client Portal

Log in to your IBKR Client Portal account.

Navigate to the Portfolio section.

Locate the short call option position you wish to close.

Click on the “Close” button associated with that position.

In the order entry screen:

Confirm the “Buy to Close” action.

Set your desired order type (e.g., Limit or Market).

Specify the quantity (typically 1 contract per 100 shares).

Review the order details and click “Submit” to execute the trade.

Using Trader Workstation (TWS)

Open the TWS platform and go to the Portfolio tab.

Find the short call option position in your portfolio list.

Right-click on the position and select “Close Position” from the context menu.

In the order entry panel:

Ensure the action is set to “Buy to Close”.

Choose your preferred order type and price.

Confirm the quantity.

Click “Transmit” to send the order for execution.

Once executed, your short call position will be closed. Your shares will remain in your account unless you decide to take further action.

Tip: If you're rolling the position, you can use a combo order (Sell to Open + Buy to Close) to execute the adjustment in one step. IBKR supports this through the “Strategy Builder” tool in TWS.

Final Thoughts

Covered calls are not fire-and-forget trades. While the strategy can be passive in nature, the best results often come from active management, especially near expiration.

By understanding when and how to close a position, you reduce the chances of surprise assignment, capture profits more efficiently, and give yourself more flexibility in adapting to market conditions.