Covered call is one of the easiest option strategy and can be used by any investor who has little bit of understanding of derivatives market or is ready to learn by investing some time.
Strategy Involves buying the underlying shares of stock (SBI in this case) and also write call options on the same, there are 2 ways in which you can write options -
INVESTMENT (Dec 1,2016)
Stock of SBI, Qty # 3000 at INR 255
Total Investment = 7,65,000
INFLOW (Dec 1, 2016)
Sold call option for strike 250 and Premium of INR 13.40
Inflow => 3000 (lot size) X 13.40 = 40,200
PROFIT GRAPH
in the chart 1,2,3,4,5 represent 230,240,250,260 & 270 respectively
CONCLUSION
This strategy works best when you expect minimum movement in the stock price or are already holding onto the stock and want to make some quick gain from the current portfolio.
If you notice in the table, it helps to recoup some of the losses but can also limit the upside potential, so please choose as per your portfolio and risk appetite.
Strategy Involves buying the underlying shares of stock (SBI in this case) and also write call options on the same, there are 2 ways in which you can write options -
- In the money (ITM) call options- Write call options for strike price closer or less than the spot price.It is usually used by people who are slightly bearish on the stock or want to make some profit if the stock has already moved upwards.
- Out of Money (OTM) call options - Traders who are not expecting much rise in the price of the options will write options for strike price higher than spot price.
INVESTMENT (Dec 1,2016)
Stock of SBI, Qty # 3000 at INR 255
Total Investment = 7,65,000
INFLOW (Dec 1, 2016)
Sold call option for strike 250 and Premium of INR 13.40
Inflow => 3000 (lot size) X 13.40 = 40,200
PROFIT GRAPH
CONCLUSION
This strategy works best when you expect minimum movement in the stock price or are already holding onto the stock and want to make some quick gain from the current portfolio.
If you notice in the table, it helps to recoup some of the losses but can also limit the upside potential, so please choose as per your portfolio and risk appetite.
