In today ‘s tutorial, we are going to be building a Covered Call Calculator. The whole estimate behind this calculator is that we can very easily take a spirit at an options chain, and get an idea as to which calls equate to what percentage, as a come back on our capital .
Covered Call Calculator in ThinkOrSwim Options Chain
If you are already familiar with shroud calls and want to skip the code exercise, you can use the radio link in the description box to download the final version of the calculator .
For Volatility Box members, I ’ ve built a more advanced version of the Covered Call Calculator, which allows you to run this analysis on stocks you already own, where you can input your cost-basis, and evaluate the return percentages .
The tutorial will be released early this workweek, and we will send out an electronic mail once the code/tutorial are available.

The way I have laid out this tutorial is in 4 different parts :

  • Part 1: Real-estate analogy for covered calls
  • Part 2: We will build out the calculator in a very simple Excel sheet
  • Part 3: We will then translate the calculator into ThinkOrSwim code
  • Part 4: We will apply the calculator and compare different options chains

thus, let ’ s contract started !

Covered Call Video Tutorial

Watch the video tutorial here, and follow along with the scripts below .

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How Covered Calls are Similar to Real Estate? 

Let ‘s start by first comparing how cover calls are exchangeable to real estate of the realm .
And rather of using made-up numbers, let ’ s manipulation a real exemplar. This is a piece of property that ’ s on sale in Indiana. I ’ ve blacked out the address, but we can see the rest of the details here .
Indiana House with Cash Flow
This worksheet is made by the folks trying to sell the property, so keep in mind, the numbers are most likely a bite inflate. And tied THEN, you will find, that using the cover call ThinkOrSwim calculator, you can very easily find better opportunities .
The cash list monetary value for this house is $ 67,500 .
The monthly cash run, after expenses, is approximated to be $ 373.34 .
That ’ s a monthly cash hang of 1 % .
so let ’ s say this a different way – with $ 67,500 invested, we expect to make a 1 % recurrence every 30 days, in the shape of “ rent. ” Equity appreciation is separate, and we ’ ll leave it as a non-factor for this exercise .
And before we even get to comparisons, let ’ s express the obvious – real estate is a a lot different asset class, with a different set of goals and risk parameters, and comparing the two is akin to comparing apples to oranges .
however, we try to do it anyways in the adjacent section .
now, let ’ s compare the rental income to covered call income .
We ’ ll use the lapp $ 67,500 as our starting luff, to assess how many shares of a certain company we can buy, and how many calls we can sell against those shares .
For this case hera, I ’ ve laid out 3 different stocks and their respective returns .

ATM calls T
(Low Volatility)
(Mid Volatility)
(High Volatility)
(Very High Volatility)
16 APR 21 IV 25.28% 74.49% 119.76% 196.03%
Return % if calls not exercised 1.44% 5.3% 9.32% 19.02%
Return % if calls exercised 2.25% 11.23% 18.01% 19.53%

As you can see, in all scenarios, ranging from a breed like AT & T ( T ), which has only 25 % IV, all the way astir to a neckcloth like AMC ( AMC ), we outperform the 1 % from veridical estate of the realm .
The “ risk ” hera is the fluctuation in the price of the fundamental, which could go against you much quicker than that of a house. And that ’ s why, I ’ ve laid out different excitability regimes, for guileless comparison .
The most important question, that I think your suffice has to be “ yes ” to, is if you are comfortable being long shares of the underlying that you are fifty engagement at .
If the answer to that is no, keep going down your candidate list .

Covered Call Calculator in Excel:

Let ’ s starting signal by building a cover call calculator in Excel first .
A side note before we get started — this work is even easier in Google Sheets, where you can use the Google Finance function to automate cells, such as the current price of the lineage, etc .
This doesn ’ metric ton want to be polished, so permit ’ s keep it efficient .
We will need a list of symbols, their current stock price, the affect of the choice we ’ d like to sell, along with the premium received. And using that information, we can calculate two unlike tax return percentages.

One render share will be based around if the shares do not get called away, and the second base reappearance share will be based around if the shares do get called away .
The scenario in which our Out-Of-The-Money ( OTM ) covered birdcall gets exercised is analogous equivalent to selling a slice of property with at least ( some ) equity appreciation .
Covered call calculator in Excel
here is the formula for calculating the return share, for shares that do not get called away ( per 1-lot / 100 shares ) :

  • Premium Collected / Current Price

here is the recipe for calculating the refund share, for shares that are called away ( per 1-lot / 100 shares ) :

  • (Premium Collected + Profit From Selling Shares) / Current Price

And that ‘s the calculator built in Excel. We now need to translate this entire Excel worksheet into thinkScript code, which allows this integral process to be automated .

Covered Call Calculator in ThinkOrSwim:

For Part 3 of this tutorial, we ’ ra going to translate the formulas that we ’ ve built into Excel into thinkScript .
There are 2 key benefits to having our cover call calculator live inside of ThinkOrSwim :

  • You can quickly compare different strikes, across different expirations, for a single stock
  • You can quickly compare a group of stocks, and rank by return percentages

Let ’ s start out .
If you are pasting in the concluding download code, this is the process you will need to follow a well .
first, we need to come into the “ Trade ” tab inside of our ThinkOrSwim platform .
This code will live inside of a “ Custom Quote ” in TOS, which is besides shared by the dashboard column .
To create a custom quote, we can click the neglect down, and choose “ Customize ”
After choosing “ Customize, ” you can select “ Custom Quotes ” from the drop down menu, and click the scroll icon to create a new custom-made quote .
Inside of the custom quote, we can start by inaugural defining our basal variables. These include our base share consider, and our establish narrow consider .

def maxShares = 100;
def maxContracts = 1;

By defining them individually, this allows us to change the value of these variables in one place, rather of every line in the code .
After that, we can start by defining the formula for our reappearance percentage for the scenario in which our address is not exercised :

def totalStrikePriceGainPct = (totalStrikePriceGain + premiumCollected)/(MaxContracts*100*close(getUnderlyingSymbol()));

def premiumCollectedPct = premiumCollected/(MaxContracts*100*close(getUnderlyingSymbol()));

Great. Next, we need to define the formula for our second scenario – the one in which our call does get exercised, and our shares taken away from us :

def strikePriceGain = GetStrike() - close(getUnderlyingSymbol());
def totalStrikePriceGain = strikePriceGain * maxContracts * 100;
def totalStrikePriceGainPct = (totalStrikePriceGain + premiumCollected)/(MaxContracts*100*close(getUnderlyingSymbol()));

That ’ s it. We have the two different pieces that help us make this calculation .
now, we need to plot the values in a neat manner, using labels .

AddLabel(totalStrikePriceGain,AsPercent(premiumCollectedPct) + " | " + AsPercent(totalStrikePriceGainPct), color.white);

Click Save. And apply to our charts .

And just like that, we have an supernumerary column inside of our options chain, that calculates for us the returns for each option ’ mho strike, across a assortment of different expirations .

Applying the Covered Call Calculator on KOPN:

Let ’ s apply our newly Covered Call Calculator to the stock, KOPN .
KOPN Squeeze on ThinkOrSwim Charts
There are a few reasons why KOPN is on our radar :

  • Trend – We have a bullish Market Pulse line, confirming a bullish trend
  • Squeeze – We had a recent Slingshot Squeeze signal fire long, which has 2 winners and 1 loser over the past 5 years. Average winner is 15.96%, while the 1 loser was -0.46%.
  • Squeeze – We had a Squeeze Signal fire long with Friday’s activity, suggesting continued bullish movement, and for the squeeze to fire long

now, if we come in to the choice ’ s chain, let ’ s evaluate what we have. We ’ ll start with the April monthlies inaugural .
On our charts, $ 16 and $ 18 are the two Fibonacci Extensions that we have, where we expect price to pause and reverse .
The closest strike we have which accounts for both of those levels is the $ 20 assume. That ’ s a delta 16 call option, in which your return percentage for equitable the premium is 2.87 %, and if your calls are exercised, is 82.41 % .
not bad .
If we move one hit near to In-The-Money ( ITM ), we have the $ 17.50 hit, which would alter those percentages to 4.94 % and 62.03 %, respectively .
nowadays, if we switch to a unlike passing cycle – let ’ s navigate to the 21 May ‘ 21 time series .
For the like $ 20 strike, the percentages have shifted from the 2.87 % and 82.41 % to 8.08 % and 87.61 % .
A different means of saying the lapp thing is that you are being compensated with 5.21 % in extra agio, for taking on the risk of another 35 days .
The downside is the a lot lower fluidity in the $ 20 strikes in the May series, compared to the April series .


That brings us to the end of our tutorial. We built an integral Covered Call Calculator for the options chain in ThinkOrSwim, and it truly didn ’ t take us a hale fortune of time to build it .
If covered calls were depart of your trade plan or strategy, you can now use this calculator to help make that work more efficient, and target the call that helps you meet your trading goals.

conversely, if covered calls were previously not a depart of your trade plan, I hope this tutorial helped demonstrate how they can be knock-down, if used correctly .


Click the button below to download the Covered Call Calculator for ThinkOrSwim .

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