Covered Call
InvestmentsA covered call is an options strategy where you sell a call option on shares you already own, collecting premium income. If the stock stays below the strike price, you keep the premium as additional income. Advanced strategy for equity investors seeking to generate extra income from existing holdings.
In detail
Covered call example:nOwn 100 shares of Nifty ETF at Rs 22,000nSell 1 call option (100 shares) at Rs 22,500 strike, Rs 150 premiumnCollect Rs 15,000 premium income immediatelynIf Nifty stays below Rs 22,500 at expiry: keep premium, keep sharesnIf Nifty rises above Rs 22,500: shares "called away" at Rs 22,500 (capped upside)nnRisk: opportunity cost if stock rises significantly above strike. The Rs 150 premium is yours regardless.nnBest for: large, stable holdings where you are happy to sell at a certain price but want income while waiting.
Formula
Real-life example
Ravi owns 500 Infosys shares at Rs 1,800 each. Sells 5 calls at Rs 1,850 strike for Rs 45 premium each (5 x 100 x Rs 45 = Rs 22,500 income). Infosys stays at Rs 1,830 on expiry: he keeps shares + Rs 22,500 premium. Monthly income strategy generates Rs 20,000-25,000/month on his Rs 9L holding.