Covered Call Static Return (If-Not-Called)
Annualized return on a covered call assuming the stock finishes below the strike and the option expires worthless. Premium is the only return, measured against the stock cost basis (the actual capital tied up in the shares).
When to use: Use when comparing covered-call income to your real cost basis rather than the strike price. The static return is the "downside-friendly" yield — what you earn if the stock simply does not get called away.
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 Cost Basis | Average cost per share of the underlying you hold | $ |
Real-Life Examples
Example 1: CC on a $50-Basis Stock at a $55 Strike
On April 29, 2026 you sell a 45-day call (expiring June 13, 2026) at a $55 strike for $1.20 of premium. Your stock cost basis is $50.
Given
Step-by-Step
On your $50 cost basis, the $1.20 premium for 45 days annualizes to 19.5% — the income you earn if the stock does not get called away.
Frequently Asked Questions
Same numerator (premium); different denominator. Strike-based uses the contract's strike price; static uses your actual stock cost basis. For OTM calls written on long-held appreciated stock, static return on basis is typically higher than strike-based return.
When the call is significantly OTM and your stock basis is well below the strike. The strike-based formula understates your true return on capital because your real capital outlay was the basis, not the strike.
Then your basis equals the current stock price, and static return on basis is essentially the strike-based formula scaled by Strike/StockPrice — close to identical for ATM calls, slightly different for OTM/ITM.