{"id":4114,"date":"2023-04-17T10:12:14","date_gmt":"2023-04-17T10:12:14","guid":{"rendered":"https:\/\/www.paytmmoney.com\/blog\/?p=4114"},"modified":"2023-06-21T16:01:55","modified_gmt":"2023-06-21T16:01:55","slug":"covered-call-strategy-for-option-trading-beginners","status":"publish","type":"post","link":"https:\/\/www.paytmmoney.com\/blog\/covered-call-strategy-for-option-trading-beginners\/","title":{"rendered":"Covered Call strategy for Option Trading Beginners"},"content":{"rendered":"

A covered call strategy is an options trading strategy in which a stock or other underlying asset is owned and a call option on that asset is sold. The aim of this strategy is to generate income from the option premium while also limiting potential losses in case the stock price goes down.<\/span><\/p>\n

How it operates? <\/b><\/h3>\n

Let\u2019s understand this with an example.<\/span><\/p>\n

Instrument: Nifty.<\/span><\/em><\/p>\n

Monthly Return Expectation: 1-2%<\/span><\/p>\n

The Nifty Index is trading at 17800, and the lot size of the Nifty is 50 qty. So the total <\/span>value of the Nifty contract is 17,800 x 50 = 8,90,000.<\/b> To do a covered call strategy, you should buy the entire value of the contract for Nifty in the cash or equity segment.\u00a0\u00a0<\/span><\/p>\n

But how do you buy Nifty in the cash segment?<\/b><\/h3>\n

No, you can\u2019t; but, we have three ways to own the Nifty index –<\/span><\/p>\n

1. Buy all the 50 stocks of Nifty 50 Index in cash with the same index weightage – but buying all the stocks and keeping check on weightage and adjustment is a painful task and expensive.<\/span><\/p>\n

2. Buy Nifty Futures – We can buy futures by simply paying margin money, but there are some challenges, such as:<\/span><\/p>\n