Return if Exercised

Return if Exercised is a way of measuring the profit a covered call trader would earn if their stock gets "called away" — meaning the option they sold is exercised and they are forced to sell their shares at the strike price.

Here's the setup: a covered call means you own shares of a stock and you sell someone else a call option against those shares, collecting a premium (a cash payment) for doing so. That option gives the buyer the right to buy your shares from you at a fixed price, called the strike price, any time before the option expires. If the stock price rises above the strike, the buyer will likely exercise that right, and your shares get sold out from under you at the strike price. Return if Exercised tells you, as a percentage, what your total profit would be in that scenario, combining the premium you collected with any gain (or loss) between what you originally paid for the stock and the strike price you'd be selling at.

The nuance that trips people up is that this is a best-case, one-scenario number, not a guaranteed or average return. It only describes what happens if the stock finishes above the strike and the option is exercised. If the stock stays flat or falls, you keep the shares and the premium, and your actual return will look completely different (usually calculated separately as "return if unchanged" or just an unrealized loss). Traders sometimes quote Return if Exercised as an annualized figure to compare it against other trades, but the annualizing math depends on assumptions about how often you could repeat the trade, so two people can compute different annualized numbers from the same position.

It's also worth noting this figure ignores commissions, assignment fees, taxes, and the possibility of early exercise, all of which can shave a bit off the real result.