Covered Call Static Return (If-Not-Called)
Covered Call Static Return (If-Not-Called)
Simple annualization of call premium divided by stock purchase price. It equals the position’s static return only when the stock finishes unchanged and the call expires worthless, ignoring dividends, fees and taxes.
When to use: Use to compare premium income for a new buy/write position whose stock purchase and option sale occur on the stated trade date.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| IRR | Annualized Return | Simple-annualized return assuming the option expires worthless | % |
| Today | Today's Date | Date the option is sold (trade date) | date |
| Expiration | Expiration Date | Date the option contract expires | date |
| Premium | Premium per Share | Cash credit received per share for selling the option | $ |
| StockBasis | Stock Purchase Price at Trade Date | Purchase price per share when this buy/write begins; use the same start date for stock and option | $ |
Real-Life Examples
Example 1: CC on a $50-Basis Stock at a $55 Strike
Buy stock at 50 per share and sell the call on 2026-04-29; receive premium 1.2, expiring 2026-06-13. Assume unchanged stock price and a worthless call at expiration.
Given
Step-by-Step
Simple annualized premium yield is 19.4667%. Stock losses can exceed the premium; this is not a guaranteed return.
Frequently Asked Questions
No. With stock purchased at 50, premium of 1.20 and an expiration price of 40, the combined position loses 17.6% before fees and dividends, even though the call expires worthless.
Premium divided by historical basis is an income-on-cost ratio. Annualizing gains or losses on old shares over only the new option’s holding period is not the investment’s annualized total return.