Can You Sell Covered Calls in an IRA? What Every Retiree Should Know

Thinking about generating income in your retirement account without selling your stocks? Selling covered calls in an IRA is a possibility you might want to check. This article breaks down what’s allowed, how it works, and what you need to watch out for. If you’ve got 100 shares sitting idle, this might be worth your time.

Key Takeaways

• Can you sell covered calls in an IRA? Absolutely, this conservative strategy involves selling call options against stocks you already hold, generating income through premiums.
• Covered calls in IRAs can generate income. You can sell covered calls in an IRA to create a steady income stream without selling your stocks.
• Most brokers allow it with basic approval. Many IRA custodians support this strategy, but you may need to request options trading permissions to begin.

Can You Sell Covered Calls in an IRA?

Yes, you can sell a covered call in an IRA, and it’s one of the simplest ways to generate income from stocks you already own. The strategy works like this: you hold at least 100 shares of a stock, then sell a call option against it. That’s why it’s called “covered” - the shares are already in your account, so there’s no naked risk. 

The P&L of your covered call will normally look like this:

Your profit is capped if the stock rises too much, but your downside is the same as simply owning the stock – minus the premium, which helps cushion small losses.. Think of it this way: you are selling a call option to collect credit, and you will normally do this on a stock on which you are bullish (and, as an extra, you may do so with a dividend-paying company). Many retirees use these strategies to create consistent, low-risk income inside their IRA without selling their positions.

There are at least three reasons why this strategy works in an IRA:

• No need to sell the stock to earn income
• Low risk compared to other options trades
• Perfect for sideways or slightly bullish markets

Selling Covered Calls in an IRA - Here’s How It Works

You can sell covered calls in an IRA if you already own at least 100 shares of a stock in the account. Selling a call option means you collect a cash premium now, but you cap your upside if the stock moves above the strike price. It’s a trade-off: less potential gain, but more steady income. 

This approach works well when the market is flat or only slightly bullish. Is it possible to sell covered calls in an IRA for every stock? Even though your broker may not have particular restrictions on your IRA, you should focus on quality names with liquid options (and, like we said above, dividends would not hurt your trade). 

Brokerage Rules and How to Get Started

Most brokers let you sell covered calls in an IRA (and you may leverage our screener built for options traders to do so), but you need approval first. This usually means applying for options trading permissions, which involves a short questionnaire about your experience and goals. Don’t worry if you’re new – covered calls are often classified as a basic-level strategy, and many beginners get approved. 

Can you sell covered calls in an IRA without a lot of capital? Not really: you’ll need at least 100 shares of a stock to get started. Stick with high-quality names you already hold. That way, you stay invested while collecting extra income. If you're unsure, call your broker and ask what level of options approval you need. Some platforms have automated tools to help you apply. 

Once approved, you’ll be able to open trades directly from your IRA. You can sell covered calls in an IRA as long as the account has the right permissions and holdings in place.