What to Do If Your Covered Call is Losing Money

If your covered call is “losing money,” it means the call is more expensive to buy back than what you sold it for.

Two things typically cause your CC to rise in price:

The stock rallied past your strike, implied volatility spiked, or both hit at the same time. Each one requires a different response (and none of them require panic).

Secondly, keep in mind that the red number on your broker screen is a mark-to-market snapshot, not a realized loss.

If the stock went up, your CC is “losing,” but your shares are gaining. The net position may be far better than you think.

And if IV spiked while the stock stayed flat, you’re no more likely to be called away than when you sold the call, in which case the inflated price is temporary.

Before you do anything (including close it, roll it, or panic), you need to understand what’s driving that number.

And that’s exactly what we’ll cover in this tutorial.

If you’re new to covered calls, start with What are Covered Calls?.

And If you just got assigned and need guidance on selling your first CC, see How to Sell Covered Calls After Assignment.

Finally, I want to note that this is the covered call counterpart to What to Do If Your Cash Secured Put is Losing Money. The mechanics are inverted (a CSP loses money when the stock drops, a CC loses money when the stock rises), but the emotional experience is the same.

Why Your Covered Call Is Showing a Loss

Simply put, your CC is “losing” money because the option is more expensive to buy back than what you sold it for.

Typically, this happens for two reasons:

1. The stock appreciated in value (i.e., went up in price)
2. IV spiked (making the option more expensive to buy back)

It’s worth noting that both of these can happen at the same time.

The Stock Appreciated

In this case, the stock rallied. The call gained intrinsic value. Now it costs more to buy back.

This is the inverse of a losing CSP. With a CSP, the stock drops toward your strike and the put gets more expensive. With a CC, the stock rises past your strike and the call gets more expensive.

However, when your CC is “losing” because the stock rose, your shares are appreciating by the same amount or more.

The CC “loss” is mark-to-market, which is what it would cost to close the option right now. It’s a snapshot of one leg of a two-leg position (shares + call). Your broker shows what the call is doing in isolation, not what the combined position is doing.

That disconnect causes traders to panic-close positions that were actually profitable.

Implied Volatility Spiked

The second reason your CC may be losing money is that the stock may not have moved much at all…but implied volatility expanded, and that inflated the option’s extrinsic value.

This happens when:

• Macro news hits (geopolitical events, trade policy shifts, Fed announcements)
• An earnings date approaches,
• Orr the broader market gets spooked and the VIX surges

The CC got more expensive to buy back, but the stock isn’t any closer to your strike. You’re not more likely to be called away than when you sold the call.

IV spikes are often temporary.

When volatility contracts, the extrinsic value deflates and the CC’s mark-to-market loss shrinks (often significantly).

Both Can Happen at the Same Time

In a sharp market move, the stock rallies and IV expands. The call gains intrinsic value from the stock move and extrinsic value from the IV spike simultaneously.

This is the worst-case mark-to-market scenario. The number on your screen looks terrible, but it’s reflecting a temporary combination of forces, not a permanent loss.

Understanding which force is driving the CC’s mark-to-market loss is the first step toward responding correctly.

Your Broker Is Telling You Half the Story

Brokers display the mark-to-market value of the CC in isolation.

They don’t show the combined position (shares + CC).

And they typically don’t factor in the premiums you’ve already collected from prior rounds (i.e., CSP premium, earlier CC premiums) that reduced your true cost basis.

Your true cost basis is the number that matters, not the P&L your broker displays.

Here’s a detailed example using CDE (Coeur Mining), a stock I’ve been Wheeling throughout this series.

As a refresher, my CDE cost basis is $18.65 after the original CSP premium and multiple rounds of CC premium ground it down.

Note: For the full cost basis derivation, see How to Filter and Screen Covered Calls.

Now suppose I sell a CC at the $20 strike for $0.70 ($70 total premium).

After I sell the CC, CDE rallies to $21.

Here’s what the broker shows me:

• CC sold for: $0.70
• CC now worth: approximately $1.00 ($1.00 intrinsic value since the stock is $1 above the strike)
• Mark-to-market loss on the CC: $0.70 - $1.00 = -$0.30/share (-$30)

The broker says I’m down $30 on my CC position.

Here’s what the broker doesn’t show:

If CDE closes above $20 at expiration, my shares get called away at $20. The mid-trade mark-to-market “loss” on the CC never materializes as a real number. The position simply closes at the strike price.

The full P&L if called away:

• Capital gain: ($20.00 - $18.65) × 100 = $135
• CC premium already collected: $70
• Total profit: $205

The broker showed -$30, but my actual profit if called away is +$205.

The broker is showing you the close path (what it costs to buy back the CC right now). It’s not showing you the expiration path (what happens if the position runs to expiration).

Those are two very different numbers.

And if CDE pulls back below $20 before expiration? The CC expires worthless. I keep the $70 premium, keep my shares, and my cost basis drops from $18.65 to $17.95.

Either way, the -$30 the broker showed me mid-trade was irrelevant.

For more on how cost basis works across the full Wheel cycle, see Selling Covered Calls Above Your Cost Basis.

Keep Your Own P&L (Your Broker Won’t Do This for You)

Here’s why all this matters:

At expiration, there are only two outcomes (and neither one looks like what the broker showed you mid-trade):

1. CC expires worthless: You keep the premium and the shares. Your cost basis drops. You sell another CC and keep grinding.
2. Shares get called away at the strike: Your profit or loss is determined by the strike vs. your true cost basis, not the CC’s mark-to-market value.

In my CDE example:

1. CC expires worthless: cost basis drops from $18.65 to $17.95
2. Called away at $20: total profit of $205

Neither of those numbers appeared anywhere on my broker’s screen while the trade was open.

Your broker tracks the option. You track the trade.

Here’s the minimum I track for every CC position:

• Original CSP strike and CSP premium collected
• Assignment date and effective purchase price
• Each CC: strike, premium, expiration date, outcome (expired or called away)
• Running cost basis after each round

When the CC flashes red, I open my spreadsheet. If the strike is above my cost basis, I already know the answer: the position is fine. The Wheel is working.

Not All “Losing” Covered Calls Are the Same

Your situation likely falls into one of four scenarios. Diagnose yours before doing anything.

Scenario 1: Stock Rallied Slightly, CC Still Out of the Money

The stock moved up. Your CC is approaching the money but it’s still OTM.

• Time decay (theta) is still working for you
• The CC may still expire worthless
• No action required unless something changes dramatically

This is a hold situation. Let time do its work.

Scenario 2: Stock Is Above Your Strike, Being Called Away Is Likely

The stock blew past your strike. Being called away is probable.

If your strike is above your cost basis, this is a profitable outcome. The Wheel is working as designed.

You’ll collect the capital gain (strike minus cost basis) plus the CC premium you already pocketed.

This is the scenario from my CDE example — called away at $20 with an $18.65 cost basis means $205 in total profit.

The CC may look like it’s “losing”, but the overall position is winning.

This is the most common scenario for disciplined Wheel traders who sell strikes above their cost basis.

Scenario 3: Stock Is Running Hard, You Want to Keep the Shares

In this case, the stock is surging. Your thesis says it has further to run. You don’t want to let the shares go at this strike.

You have two options here:

• Roll up and out: Buy back the current CC and sell a new one at a higher strike and later expiration for a net credit
• Buy back the CC at a loss: Remove the cap on your upside if your conviction is high enough that continued share appreciation will more than offset the realized loss on the option

(This is the only scenario where a “losing” CC genuinely requires a decision.)

Scenario 4: IV Spiked, Stock Is Relatively Flat

The stock hasn’t moved much, but the CC is showing a loss because implied volatility expanded:

• A macro event, approaching earnings, or a broader VIX spike inflated option prices across the board
• The stock isn’t meaningfully closer to your strike
• You’re no more likely to be called away than when you sold the CC

This is the strongest hold situation of all.

IV spikes are temporary. When volatility contracts (and it will), the option’s extrinsic value deflates and the CC becomes cheaper. Theta is still working. Time is still your friend.

Buying back a CC during an IV spike is the worst possible move. You’re paying the most inflated price to close a position that will likely resolve itself.

Which Scenario Are You In?

Figure out which scenario you’re in. The right response depends entirely on the diagnosis.

Note: Scenario 3 is typically the only one that requires action. Scenarios 1, 2, and 4 will resolve themselves.

The Decision Framework: Hold, Let It Go, Roll, or Buy Back

Now that you’ve diagnosed your scenario, here are your four options:

Note: Hold applies regardless of the cause (stock appreciation, IV spike, or both). Let it go, roll, and buy back only apply when the stock has appreciated toward or past your strike. If IV spiked but the stock is flat, hold is almost always the correct response.

Hold

Stock is near your strike but time remains. Theta is still eroding the CC’s value. The stock may pull back.

I suggest doing nothing in this case.

This is Scenario 1 from above. The CC may still expire worthless, and every day that passes works in your favor.

Holding is the hardest option emotionally because it feels like inaction.

But doing nothing when the math is on your side is a deliberate strategy, not a failure to act.

This is also the correct response when IV spiked but the stock is flat (Scenario 4). IV contracts over time. Theta is working. The CC’s inflated value will deflate as both forces work in your favor.

Let It Go (Accept Being Called Away)

If your strike is above your cost basis being called away is a profit. The Wheel completes. Capital is freed for the next cycle.

This may feel hard emotionally because your broker says you’re “losing” on the CC. But keep in mind you’re winning on The Wheel cycle.

The CC’s mark-to-market loss is a red herring. It’s the cost of completing the Wheel cycle at a profit.

In my CDE example, the broker showed -$30 on the CC. But called away at $20 with a cost basis of $18.65 means $205 in profit. The -$30 evaporates at expiration. The $205 doesn’t.

Letting shares get called away above your cost basis is a win. The CC “loss” is not a loss. It’s the mechanism by which the Wheel returns your capital with a profit.

For the full mechanics of what happens next, see What Happens When Your Covered Call is Exercised and Called Away?

And for the nuances of what happens when your strike is below your cost basis (a different and more complex situation), see Selling Covered Calls Below Your Cost Basis.

Roll Up and Out

You may consider rolling up and out when you want to keep the shares.

You roll to a higher strike and later expiration for a net credit. This buys time and raises your exit price. But it also ties up capital longer and defers a potentially profitable exit.

Always roll for a net credit.

If you can’t roll for a credit, the market is telling you the move has gone too far too fast. Consider the other options instead.

Rolling is a tool, not a default response. Use it when keeping the shares genuinely serves your thesis, not as a reflex to avoid being called away.

Buy Back at a Loss

This case should be used sparingly, but when you are right, you can win big.

Here you have have high conviction the stock will continue to appreciate. You buy back the CC at a realized loss on the option, knowing that continued share appreciation should more than offset the cost.

Effectively, you’re paying to remove the cap on your upside. This is the opposite of panic closing. It’s a deliberate, thesis-driven move.

It only makes sense when:

• Your conviction is strong and based on fundamentals, not hope
• The rally has legs (not just a short squeeze or a single-day spike)
• The expected future appreciation meaningfully exceeds the cost to buy back
• The broader market is in a very strong Weinstein Stage 2 uptrend

Matching Your Scenario to Your Response

If being called away is profitable, let it happen. If you have high conviction and want to keep the shares, act deliberately.

Mistakes to Avoid When Your Covered Call Is Underwater

Mistake 1: Panic Buying Back the CC at Peak Cost

Why it’s tempting: The red number in your brokerage screen is screaming at you and you want the pain to stop.

Why it hurts you: You lock in the maximum realized loss on the option at the worst possible moment. If you’d waited, theta decay or a pullback might have reduced the buyback cost. Or the shares would have been called away at a profit and the “loss” would have evaporated entirely.

The mark-to-market loss on a CC is not a realized loss. Buying back to close makes it one.

Mistake 2: Confusing a “Losing CC” with a Losing Position

Why it’s tempting: Your broker shows red on the CC and your brain says “I’m losing money.”

Why it hurts you: Your CC is underwater, but your shares appreciated by the same amount or more. The combined position may be profitable. Reacting to the CC’s P&L in isolation ignores the other half of the trade.

Mistake 3: Rolling Endlessly to Avoid Being Called Away

Why it’s tempting: Rolling feels productive. You’re “managing” the position. You’re avoiding the moment where you let your shares go.

Why it hurts you: You’re paying to defer a profitable outcome. If your strike is above your cost basis, being called away is the plan. The Wheel was designed to complete this cycle.

Endless rolling ties up capital, racks up transaction costs, and prevents you from deploying into better opportunities.

If being called away is profitable, let the Wheel complete.

Mistake 4: Forgetting Your True Cost Basis

Why it’s tempting: Your broker’s display is right in front of you. Your spreadsheet is somewhere else.

Why it hurts you: You react to the broker’s mark-to-market number instead of checking your actual P&L. You may be more profitable than you think.

The premiums you’ve collected across the Wheel cycle reduced your cost basis to a number your broker doesn’t show. Without that number, you’re making decisions blind.

Keep your own P&L. Know your cost basis. When the CC flashes red, check your numbers before making a move.

Being Called Away Is the Wheel Working as Designed

A “losing” covered call usually means the stock went up.

In the Wheel, that’s a feature, not a bug.

If your strike is above your cost basis, the Wheel just completed a full profitable rotation. Capital flowed from cash (when you sold the CSP) to shares (when you got assigned) and back to cash (when the shares were called away), collecting premium at every step.

The CC’s mark-to-market loss was never the real number, it was simply was a mid-trade snapshot of one leg. The real number is your total P&L across the full Wheel cycle.

Now you have a framework. Diagnose your scenario. Check your cost basis. Choose your response.

For the full walkthrough of what happens when your shares are called away, see What Happens When Your Covered Call is Exercised and Called Away?

And for a broader look at the Wheel and how all the pieces fit together, see The Wheel Strategy: The Complete Guide.