Covered Call Singapore — Options Strategy Explained

Covered Call Singapore — Options Strategy Explained (2026 Guide)

A covered call is an options strategy where an investor who holds shares sells a call option on those same shares, collecting a premium in exchange for capping their upside. In Singapore, covered calls can be written on SGX-listed stocks and US-listed shares via brokers like Interactive Brokers or Tiger Brokers that offer options trading. This article is for educational purposes only and does not constitute financial advice.

Table of Contents

Table of Contents
  1. What Is a Covered Call?
  2. How Covered Calls Work
  3. Covered Call Example (Singapore Context)
  4. Pros and Cons of Covered Calls
  5. Covered Calls vs Selling Puts
  6. Tax Treatment in Singapore
  7. FAQ

What Is a Covered Call?

A covered call involves two simultaneous positions: you own 100 shares of a stock (the “cover”), and you sell (write) one call option contract giving the buyer the right to purchase your shares at a specified strike price before an expiry date. The call is “covered” because your existing shares back the contract — you are not selling naked.

The premium you collect upfront is yours to keep regardless of what happens. If the stock stays below the strike price at expiry, the option expires worthless and you keep both your shares and the premium. If the stock rises above the strike, your shares are “called away” — sold at the strike price — meaning you miss out on any gains above that level.

How Covered Calls Work

The mechanics in three steps:

  1. Own 100 shares of the underlying stock (options contracts typically cover 100 shares per lot for US-listed stocks).
  2. Sell 1 call option at your chosen strike price and expiry. You receive the premium immediately.
  3. At expiry: if price < strike, option expires and you repeat the strategy. If price > strike, your shares are sold at the strike price.

On SGX, covered calls are less common because the SGX-DT options market covers only a handful of blue chips (DBS, OCBC, UOB, Singtel, Keppel). Most Singapore investors who use covered calls do so on US-listed ETFs or stocks via brokers with options access such as Interactive Brokers, Tiger Brokers, or Moomoo.

Covered Call Example (Singapore Context)

Suppose you hold 100 shares of the SPDR S&P 500 ETF (SPY) at USD 510 per share (as at Q1 2026). You sell a call option with a strike of USD 520 expiring in 30 days, collecting a premium of USD 3.00 per share = USD 300 total.

  • Scenario A: SPY stays at USD 510 at expiry. Option expires worthless. You keep USD 300 premium (~0.59% return in 30 days, ~7% annualised).
  • Scenario B: SPY rises to USD 535. Your shares are called away at USD 520. You gain USD 10/share capital gain + USD 3 premium = USD 1,300 profit, but miss USD 15/share above the strike.
  • Scenario C: SPY falls to USD 490. Premium provides some downside buffer — your effective cost basis drops to USD 507.

Pros and Cons of Covered Calls

Advantages:

  • Generates additional income on existing holdings — useful for sideways markets
  • Reduces effective cost basis, providing limited downside protection
  • Singapore does not tax options premiums as income if they are not your primary trade (consult IRAS for your specific situation)

Disadvantages:

  • Caps upside — you miss out on strong rallies above the strike
  • Does not fully protect against large drawdowns
  • Requires options-enabled brokerage account and understanding of options mechanics
  • SGX options market is relatively illiquid for most stocks

Covered Calls vs Selling Puts

Selling a cash-secured put is synthetically equivalent to a covered call in terms of risk/reward profile. With a covered call you already own the stock; with a cash-secured put you hold cash as collateral and are obligated to buy shares if the stock falls below the strike. Both strategies generate premium income. Singapore investors often prefer covered calls on ETFs they already hold for dividend income, layering options premium on top of distributions.

Tax Treatment in Singapore

Singapore has no capital gains tax and no tax on dividend income. Options premiums received from covered calls are generally not subject to income tax if you are not trading options as a business. However, if IRAS deems your options activity to constitute a trade, premiums may be taxable. Consult a tax professional for your specific circumstances. US-listed options are also subject to US withholding rules — seek guidance if unsure.

For more on Singapore’s tax-friendly investing environment, see our Capital Gains Tax Singapore and Dividend Tax Singapore guides. To understand the underlying assets suitable for covered calls, explore our REITs vs ETF Singapore comparison.

FAQ: Covered Call Singapore

Can I write covered calls on SGX stocks?

Yes, but the SGX-DT options market is limited. Options are available on DBS, OCBC, UOB, Singtel, Keppel Corp and a handful of index products. Liquidity can be thin. Most Singapore investors write covered calls on US-listed stocks or ETFs via brokers like Interactive Brokers.

What is the maximum profit on a covered call?

The maximum profit is the premium received plus any capital gain up to the strike price. Above the strike, your upside is capped because your shares will be called away.

What happens if the stock drops sharply after I sell a covered call?

The premium provides limited downside protection. If the stock falls significantly, the premium offsets a small portion of the loss but does not eliminate it. You still bear the full downside risk as a shareholder.

Is covered call income taxable in Singapore?

Generally, options premiums are not subject to income tax in Singapore if options trading is not your primary business. Singapore has no capital gains tax. However, individual circumstances vary — consult IRAS or a tax professional.

Which brokers in Singapore support covered calls?

Interactive Brokers, Tiger Brokers, and Moomoo all support options trading including covered calls on US-listed securities. You will need to apply for options trading permissions and meet eligibility criteria.