Can Covered Calls Be Used Inside a TFSA or RRSP? What You Need to Know
Can Covered Calls Be Used Inside a TFSA or RRSP?
One of the most common questions Canadian investors ask is: “Can I sell covered calls in a TFSA or RRSP?” The short answer is yes — but with important rules and limitations you need to know.
✅ What Is a Covered Call Again?
It’s when you sell a call option on a stock you already own — collecting a premium in exchange for possibly having to sell that stock at a set price. Covered calls can generate income and slightly reduce downside risk.
💼 Are Covered Calls Allowed in Registered Accounts?
Yes. Most Canadian brokerages allow “covered call writing” in TFSAs and RRSPs because it’s a conservative, fully hedged strategy — you already own the underlying shares.
However, this can vary depending on your brokerage. Some (like Questrade or IBKR) support it by default. Others require you to upgrade your account level.
📜 CRA Rules: What to Avoid
- No naked options: You must own the stock — or it could be considered a non-qualified investment.
- No speculative trading: If the CRA views your account as operating like a business, your TFSA could lose its tax-free status.
- Stick to blue-chip stocks: This helps reduce audit risk and shows you're not trying to day trade derivatives.
🛡️ Why Covered Calls Work Well in TFSAs & RRSPs
- No tax on premiums: All the income you earn from covered calls in a TFSA is tax-free (or tax-deferred in RRSP).
- Compound inside account: Premiums stay inside your registered account and can be reinvested faster.
- Safe income boost: Covered calls on low-volatility stocks offer predictable return boosts over time.
⚠️ Things to Watch Out For
- Assignment risk: If your stock is called away, you may not be able to repurchase it easily in a TFSA (especially if contribution room is used).
- No margin: You can’t use margin or sell puts in a TFSA. Only RRSPs may allow limited margin in LIRA accounts.
- Premiums are fixed: If the stock rallies far above the strike, your upside is capped.
🧠 Final Tip
Covered calls are one of the few options strategies that work well in registered accounts — but always make sure your trade setup is low-risk and within CRA-friendly rules. Tools like Optrader.ca help screen these setups safely.