Strike selection determines your income, your protection, and your assignment probability. Here's the full breakdown.
Choosing between an in-the-money and out-of-the-money covered call is the single most impactful decision you make each cycle. ITM strikes maximize downside protection and income — at the cost of almost certain assignment. OTM strikes preserve upside potential and let you keep your shares — at the cost of smaller premiums and a thinner cushion against decline. Neither is universally better; market conditions and your goals determine the answer.
Sell a call with a strike price BELOW the current stock price. You collect more premium (intrinsic + extrinsic value) and have more downside protection — but very high assignment probability (50–70%). You will likely sell your shares at expiration.
Sell a call with a strike price ABOVE the current stock price. Lower premium (extrinsic value only) but you keep stock upside up to the strike. Lower assignment probability (~25%). The standard approach for most income investors.
| Factor | ITM Covered Call (δ 0.50–0.70) | OTM Covered Call (δ 0.20–0.35) |
|---|---|---|
| Premium collected | Higher — intrinsic + extrinsic value✓ Edge | Lower — extrinsic value only |
| Downside protection | Maximum — large premium buffer✓ Edge | Minimal — only the premium received |
| Assignment probability | 50–70% — expect to sell shares | 20–35% — likely keep shares✓ Edge |
| Upside participation | None above strike (already ITM) | Gains up to call strike retained✓ Edge |
| Delta range | 0.50–0.70 (or higher) | 0.20–0.35 (standard range) |
| Ideal market bias | Bearish to flat — expect stock to stay flat or decline | Neutral to mildly bullish — expect flat or modest up |
| Break-even level | Lower — more cushion before net loss✓ Edge | Higher — less cushion before net loss |
| Best use case | Protecting a position in a bearish environment | Income on a stock you want to keep holding |
| Shares kept after expiry | Unlikely — typically assigned | Likely — position continues✓ Edge |
Our daily scanner finds the highest-yield covered calls across 3,500+ stocks — ranked by CCL Score, updated every evening.
View Today's Scanner →It depends on your primary goal. If you want maximum downside protection and are willing to forgo upside, ITM calls (delta 0.50–0.70) collect more premium and provide a larger cushion. If you want to keep upside potential while still collecting income, OTM calls (delta 0.20–0.35) are standard. Most professional covered call strategies target 0.25–0.35 delta.
A call option is ITM when its strike price is below the current stock price. For covered calls, this typically means delta above 0.50. The higher the delta, the deeper ITM the option is, and the more it behaves like owning the stock outright.
Yes — significantly higher. An ITM covered call with delta 0.70 has approximately a 70% probability of being assigned at expiration. An OTM covered call with delta 0.25 has approximately a 25% probability. If you want to keep your shares, stick to OTM strikes.
ITM covered calls provide the most downside protection because the premium received is larger. For example, an ITM strike $5 below the stock price on a $100 stock might collect $7 in premium — protecting you from the first $7 of decline before your net position goes negative.
An at-the-money (ATM) covered call has a strike price equal (or very close) to the current stock price — delta approximately 0.50. ATM calls collect the maximum time value (extrinsic value) of any strike, while balancing assignment probability at about 50%. They're often used when an investor is neutral and wants to maximize premium income.