You’ve mastered the mindset. You aren’t just a gambler throwing chips at a ticker symbol; you are a landlord renting out your high-quality assets. You sold a covered call, collected your premium, and now the contract is coming to an end and the stock price is higher then you expected. What are your options? Can you cancel a covered call?

What happens next?

The stock market moves fast. Maybe the stock crashed, maybe it skyrocketed, or maybe it did exactly nothing. As the owner, you need a plan for every scenario.

In this guide, I’m going to walk you through every possible covered call exit strategy so you can decide whether to sell your shares, buy back the option, or roll up and out.

First, I highly recommend you have your exit strategy thought out before you sell a covered call. If you know how you want to exit the position and what you might do if it goes the wrong direction then there will be no need to scramble. Making up your plan on the go is not a good idea, you will make emotional decisions and those are prone to mistakes. I know from experience just how difficult it can be to make a decision on the fly when your covered call has blown up your portfolio.

But less assume you are in a position now where you have sold a covered call. There are many different scenarios that can happen, and breath easy, they are generally all good.

Scenario 1: The Best Case (Expiring Worthless)

This is the “ideal” scenario for income investors. The stock price stays below your strike price until the expiration date.

• The Buyer Does Nothing: The option buyer realizes the contract is worthless because they can buy the stock cheaper on the open market. They let the contract expire.
• The Owner’s Result: You keep 100% of the premium they paid you. You keep 100% of your shares. The contract vanishes. This is the ideal scenario if you are chasing income with your covered call strategy.
• The Next Move: You are free to “rent out” your shares again immediately.

It’s the equivalent of a tenant paying you a non-refundable deposit to hold the property for a month, never moving in, and then walking away. You pocket the cash and list the unit again the next morning. If this idea is foreign to you, I recommend reading my article to learn what a covered call is before going any further.

Scenario 2: The “Can I Cancel a Covered Call?” Question

One of the most common questions I get is: “The stock is moving up fast! Can I just cancel the covered call? I would make a lot more just holding the shares.”

The short answer is no. You signed a contract. You sold someone a right. You cannot unilaterally “cancel” a covered call just because you regret the price you set. It’s unfortunate for you but think about it from the other person’s perspective. They made a bet the stock was going up, they turned out to be right, and right before making a bunch of money they get a message on their brokerage app saying “Actually…. your contract has been nullified by the seller, they no longer wish to uphold their end of the deal”.

However, you can buy your way out.

If you want to end the obligation early (to sell the shares yourself or stop the bleeding), you must buy back the specific option you sold. This is called “Buying to Close.”

• The Catch: If the stock price has gone up, the option is now more valuable. You will pay more to buy it back than you collected in premium, resulting in a net loss on the trade.
• The Owner’s Take: Sometimes taking a small loss to regain control of your asset is the right move, but it shouldn’t be your default. I personally do not use this strategy, there are much better ways of dealing with in the money calls.

By doing this you are moving from a somewhat neutral position to 100% long. You started by owning shares and hedging with a short call and end up going just long the shares. You should only be doing this when you think the shares are going to go even higher from here. If you buy back your covered calls and the stock drops again you just sold low and bought high only to watch it fall again. That’s going to be painful.

Scenario 3: Expiring In The Money (Selling Your Shares)

Let’s say the stock price shoots up and finishes above your strike price. This is often painted as a “loss” by traders, but as an owner, you need to see the truth.

• The Call Holder Purchases Your Shares: The buyer exercises their right. They buy your shares at the strike price.
• The Owner’s Result: You sell your shares at the profit target you set. You keep the premium. You keep the cash from the sale.

You made a maximum profit. You didn’t lose money; you just lost the potential to make more money if you had held the shares with no hedges. Remember, when you own shares and sell covered calls against them, the maximum you can make on the trade is the premium you collect plus the difference between the current share price and the strike price. If you are selling contracts at a $110 strike price and shares are worth $100 each at the time of the sale. The maximum upside is $10 per share plus the premium. If the share price goes to $200, you still made your $10 per share plus the premium. Acknowledging you could have instead made $100 per share is difficult but you didn’t bet that was going to happen.

Although I personally know this is a very sound exit strategy, it is not my preferred strategy.

Scenario 4: Rolling Up and Out (The Forever Lease)

This is my favorite covered call exit strategy because it allows you to have your cake and eat it too.

If your shares are about to get called away (sold) because the stock price is too high, but you don’t want to sell them, you can roll the position.

How it works:

1. Buy to Close your current losing position (taking a loss on the option).
2. Sell to Open a new option with a higher strike price and a later expiration date.

Because you are selling more “time” (extending the contract), the premium you collect on the new option is going to be higher than the cost to buy back the old one if you are selling at the same strike price. If that is ever untrue please email me so I can exploit that market inefficiency. What I do is sell a new call with a later expiration date and a higher strike price, known as rolling “up and out”. Once I start doing this I am no longer looking to maximize my credit, I am looking to maximize the likelihood of my short call being out of the money when it expires next Friday.

• The Result: You pay nothing out of pocket. You receive a net credit (more cash). You raise your sale price (strike). You keep your shares.

You can theoretically do this indefinitely, constantly pushing the obligation into the future while collecting premiums along the way. As options get more and more in the money, the net credits you get for rolling out shrink. If you are considering this option, I have written about my story rolling covered calls for months on end to exit my position.

Conclusion: You Control the Exit

The market controls the stock price, but you control the exit strategy. Whether you let it expire, sell the shares, or roll the position, the covered call exit must always be a conscious decision, not an accident.

Stop hoping. Start owning.

Written by Hayden