priya Priya is a Stock Market Analyst and professional blogger. She is the Founder and Author of www.analystcalls.in

Option strategies – Covered call, Covered put

2 min read

Covered call and Covered put are both one of the best option strategies for those who trade in F&O segment. These strategies are used for reducing the loss if trade goes against our expected trend. F&O is a risky segment which always needs protection for the trader if something goes wrong unexpectedly in the stock. These strategies are very good for positional traders as well as day traders(if the underlying stock is a market mover and shows potential movement in trend).

So what are these covered call and covered put? It is very easy to understand. This is not a rocket science..just simple strategy  that needs to be applied with some disciplinary rules which you may consider them as conditions to apply this strategy. They can be applied for both stock as well as index futures and options.

Covered call – Take long in future(buy) and cover that with shorting the nearest call option.

Covered put – Take short in future and cover that with shorting the nearest put option.

Let me explain how this covered call works. If we expect the stock to move up then we take long position in stock future and to protect this we need to short(write) the nearest call option. So, if the stock moves up and meets the target, we will be in profit in FUT. At the same time, we shorted call option and when the stock moves up the call premium also increases. When the stock meets the target we need to cover the long position in future and cover the call option as well.  Since we are shorting either At-the-money or the nearest Out-the-money call option, the rate of increase in premium will obviously be less than the rate at which the stock future moves. The profit that we get in future will be reduced to the extent to the premium we need to cover in the shorting of call and the difference in them is our profit earned.

 
Example: Take JPASSOC which was 124 last week and the 130ca option premium stands at 3.2. If we expect the stock to move up then we take long position in future and short 130ca. When the stock moved 134 then the premium went 8 from 3.2. so, we earned 10rs in Fut and lost 4.8rs in shorting. Difference is 10-4.8=5.2rs is our profit. Lot is 2k..means 5.2*2k = Rs.10400.

Assume, the stock goes down from 124 to 121. Then assume premium in 130ca goes from 3.2 to 1.5. Means, we get 3points loss in FUT but 1.7 points profit in option. So, overall 1.3 is loss but not 3. So, the advantage of this strategy is that it protects from heavy loss in future. One more merit of this concept is, assume if the stock doesn’t move much and stays at 124 till expiry. But 130ca goes from 3.2 to 0. Means there is no profit in FUT but we get 3.2rs in option..which is around Rs. 6400. In other words, if the stock is purely in sideways, this strategy works at its best, apart from purely trendy market.

Same concept applies vice-versa to covered put option strategy but in the opposite direction.

These are the following conditions which need to be taken into consideration before applying these strategies:

1. The stock needs to b a market mover. At the same time it works at its best when the stock is purely sideways.

2. It should have good liquidity in options. Otherwise due to less volume premium will have much varied bid and offer rates.

3. Choose either ATM or OTM options.

4. Both FUT and shorting the option should be taken and covered at the same time. If short not covered then it will be a naked short which is highly risky and loss is unlimited. So disclaimer of risk in shorting naked options will always be there.

Here are the few Nifty stocks which are market movers with good liquid options. SBI, Reliance, Tisco, JPAsso, Renuka, Chambal Fert, IFCI, ICICI Bank. Last but not the least in index category, Nifty Future 🙂

Happy Trading.
Priya.

priya Priya is a Stock Market Analyst and professional blogger. She is the Founder and Author of www.analystcalls.in

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26 Replies to “Option strategies – Covered call, Covered put”

  1. Dear Priya,
    Thnx for the strgy.
    A small addition. To know the sideways trend, choose those stocks or index which is trading between 5DHEMA and 5DLEMA.
    Rgds,
    Ravi

  2. Dear Priya,

    Very nice and easy to understand strategy. May I request you to explain in some other article- What is vega in option trading. Can you pls explain with an example if time permits you.I browsed through Investopedia.com and saw the definition. But I want to understand with an example. If you could help me in this regard, it will be great.

    Regards,

    Veer

  3. Dear Veer, thank you. Vega is a term used to indicate the variation of premium in the option related to 1% change in volatility in the underlying stock. simply saying the effect of change in volatility of the stock on its related option. We have different kinds of options. ATM, ITM, OTM, …AtTheMoney, InTheMoney, OutTheMoney. If we take ATM options, they have sensitive movement to the change in the volatility of the underlying stock. OTM are very less sensitive.
    Ex: Today tisco trading in the range of 10 to 15rs(608-625). So, if u take ATM calls like 620ca..it is also varying between 11 to 18 premium. Means 15rs change in stock tend to create nearly 7rs change in premium in the ATM call. If you consider OTM call like 640 or 680 then the movement is very less.
    Infact there are other terms like Gamma, delta, theta, etc..
    I did not give complete meaning of vega here..but in my coming posts I will try to explain about all these terms in detail, in a separate article, once time permits. hope Im clear with this little information for overall understanding of what you asked about.

  4. In fact today, if anyone observed Tisco and SBI both are clear examples of what we discussed here in the above article.

    Tisco – at spot 608, 620ca was around 10..when it bounced to 618 the 620ca bounced to 15.5 approx…Means, 10rs profit in Tisco fut and 5.5 to 6rs loss in the 620ca short. Over all 4rs profit. This is one cycle of covered call. Those who take more than one…multiply it with 4.

    SBI – When spot is around 3005, 3100ca trading around 48 approx…those who long in sbi fut with nearest support and short 3100ca..Later spot went 3172, and 3100ca went 107approx..
    Means 168rs profit in sbi fut and 60rs loss in short call.
    Net profit = 168-60 = 108rs * 125 lot size = Rs.13500

    SBI and Tisco both are good trades ..SBI fell almost 500rs from 3500 level..means around 15%..and bounced from good support of 3000..and one could have entered in it with 2960 support as well for more conservative SL. So, friends figure out trades like these and share your observations as well.

  5. Dear sir,
    I hope that this would be the most simplest form of 5-13 EMA channel system AFL formula working in amibroker 5.30 RC version

    PlotOHLC(((EMA( H,5 ))*(1.0009)),((EMA( H,5 ))*(1.0009)),((EMA( L,5 ))*(.9991)),((EMA( L,5 ))*(.9991)),””, ColorBlend( colorGreen, 0.9 ), styleCloud|4096,0,0,13);

    User please copy and paste this in a price chart you will get the chart

    B. SANTHANAM

  6. @Priya,

    Thank you very much for your explanation (vega) with example.

    As regards the article – I have one clarification. When we are long in future and then instead of selling the call in option- can we take put option (which is actually a hedge -but it gives the same implication of covered call). Why I am asking this is – the margin requirement will be high when you sell the call – but when you buy the put, you have to shell out the money only to the extent of premium. Please give your opinion- the pros and cons.

    Regards,

    Veer

    1. No, I don’t encourage hedging with take long positions either in call or put. The following are the demerits:
      1. Option premium is effected much by factors such as time and intrinsic value and volatility of the underlying stock. so, assume u long in FUT and took a Put to hedge..and if the stock doesn’t move..gud that there is no loss in FUT but as time prolongs the put premium gradually looses and by expiry it will be ZERO. So, u lose complete prm.

      If you are short in the Call..then assume FUT or underlying stock didnt move at all…but the prm in call goes down and this premium is ur profit. So always perfer covered strategy.

      I can give several scenarios..take Nifty few sessions bak…when Nifty is at 6350 then 65ce is around 40…when nifty comes down to 6300 then assume call is 30…and when nifty again goes to 6350…do you think call will be 40..NOWAY.

      There was huge gapup during before last week and for 80points up in nifty…only 5 points up in 64ce…even sometimes ATM options also wont move….coz Writers always intelligent..it is poor retailers get into trap 🙂

      Assume, you took Nifty short in Fut and hedged with buying a 62 or 63ca..
      and last week this happened..that 80points gapup but ca didnt move at all..means you are in 80points loss in FUT and just 5points gain in call..so it wont be a valid hedge always. Very rarely this type of hedging works..if trend is one way and expiry is far away.
      So, DONT HEDGE with long positions in options. Yes, it is taken for granted that margin is almost one FUT margin to short..but consider the merits of this system. Also, I want to mention here that to short options it takes not the full margin of FUT but less than FUT margin only, span margin is given exemption(which is around 5% i think.)..while shorting options.
      excuse me for my chat lang..(shortcut lang 🙂 )

  7. Dear mr. rajandran,

    here is an afl code , but its giving some errors in 5.30 ver of ami , can u plz look into the code and rectify it . tx in adv.

    _SECTION_BEGIN(“P&F Daily”);
    //AFL P&F Chart for Amibroker Indicator window. Based on High/low prices.
    //Based on code in AB help files
    //Reverse is 2 boxes.
    //Graham Kavanagh 30 Sep 2003

    Version(4.40);
    SetBarsRequired(100000,100000);

    //Size for P&F boxes
    boxsize=IIf(C>=0.01 AND C=10 AND C=20 AND C=30 AND C=40 AND C=50 AND C=60 AND C=70 AND C=80 AND C=90 AND C=100 AND C=150 AND C=200 AND C=250 AND C=300 AND C=350 AND C=400 AND C=450 AND C=500 AND C=550 AND C=600 AND C=650 AND C=700 AND C=750 AND C=800 AND C=850 AND C=900 AND C=950 AND C=1000 AND C=1100 AND C=1200 AND C=1300 AND C=1400 AND C=1500 AND C=1600 AND C=1700 AND C=1800 AND C=1900 AND C=2000 AND C=2100 AND C=2200 AND C=2300 AND C=2400 AND C=2500 AND C=2600 AND C=2700 AND C=2800 AND C=2900 AND C=3000 AND C=3100 AND C=3200 AND C=3300 AND C=3400 AND C=3500 AND C=3600 AND C=3700 AND C=3800 AND C=3900 AND C=4000 AND C=4100 AND C=4200 AND C=4300 AND C=4400 AND C=4500 AND C=4600 AND C=4700 AND C=4800 AND C=4900 AND C=5000 AND C=6000 AND C=7000 AND C=8000 AND C=9000 AND C=10000 AND C=11000 AND C=12000 AND C=13000 AND C=14000 AND C=15000 AND C=16000 AND C=17000 AND C=18000 AND C=19000 AND C=20000 AND C=21000 AND C=22000 AND C=23000 AND C=24000 AND C=25000 AND C=26000 AND C=27000 AND C=28000 AND C=29000 AND C=30000 AND C=31000 AND C=32000 AND C=33000 AND C=34000 AND C<35000, 175,
    200
    ))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))));
    Box = LastValue(boxsize);
    HX = round((H/box)*10)/10;
    LX = round((L/box)*10)/10;
    RH = floor(HX);
    FL = ceil(LX);

    // initialize first element
    j = 0;

    Reverse = 3; // reversal requirement

    PFC[j] = FL[0];
    PFO[j] = PFC[j] + 1;
    down = 1; // By default the first bar is a down bar.
    up = 0;
    swap = 0;

    // perform the loop that produces PF Chart
    for( i = 1; i < BarCount; i++ )
    {

    if( FL[i] = PFC[j] + Reverse && down) //Change direction to up
    {
    j++;
    swap = 1;
    PFC[j] = RH[i];
    PFO[j] = PFC[j]-1;
    }
    }
    if( RH[i] >= PFC[j] + 1 && up) //Continue up
    {
    PFC[j] = RH[i];
    PFO[j] = PFC[j] – 1;
    }
    else
    {
    if( FL[i] Ref(PFO,-1),Ref(HHV(PFC,1),-1)-1,Max(PFO,PFC))*Box;
    L = IIf(Ref(PFC,-1)Ref(PFO,-1),Ref(HHV(PFC,1),-1)-1,IIf(Ref(PFC,-1) PFO, 1,-1);

    GraphXSpace = 2;
    Title =”No Jscript ” + Name()+ ” PF HiLo, H: ” + H+ “, L: ” + L+”, Box: “+
    box + “, Reversal: ” + reverse;

    Plot( C, “P&F Chart Close”, IIf( PFC > PFO, colorBlue, colorRed ),
    styleCandle+styleNoLabel+stylePointAndFigure);

    hbar1 = H ;
    hbar2 = Ref(H,-2) ;

    lbar1 = L ;
    lbar2 = Ref(L,-2) ;

    Buy = IIf( hbar1 > hbar2 AND PFC > PFO ,True,False);
    Sell = IIf(lbar1 < lbar2 AND PFC < PFO ,True,False);

    x = Buy;
    y = Sell;

    Buy = ExRem( Buy, Sell );
    Sell = ExRem( Sell, Buy );

    PlotShapes(shapeSmallUpTriangle * Buy, colorGreen, 0, L, -12);
    PlotShapes(shapeSmallDownTriangle * Sell, colorRed, 0, H, -12);

    " Last Bar " + LastValue( BarIndex()-2 );

    AlertIf( Sell, "SOUND C:\\Windows\\Media\\Ding.wav", "Sell", 2 );
    AlertIf( Buy, "SOUND C:\\Windows\\Media\\Ding.wav", "Buy", 1 );

    Filter = 1; /* all symbols and quotes accepted */
    //filer = Buy OR Sell ;
    AddColumn(Open,"OPEN",1);
    AddColumn(High,"HIGH",1);
    AddColumn(Low,"LOW",1);
    AddColumn(Close,"CLOSE",1);
    AddColumn(V,"VOLUME",1);
    AddColumn(x,"Buy Above" , 1);
    AddColumn(y,"Sell Below", 1);
    AddColumn(hbar2,"Hbar-2", 1);

    _SECTION_END();

    _SECTION_BEGIN( "Point & Figure w Values adj" );

    GraphXSpace = 5;

    SetChartBkColor( ParamColor( "BackGroundColor", colorBlack) );

    //GraphColor = ParamColor("GarphColor",colorLightGrey);

    GridColor = ParamColor( "GridColor", colorLightGrey );

    Scaling = ParamList( "Scaling Method", "Traditional|Percentage|AVG True
    Range" );

    if ( scaling == "Traditional" )

    Box = Param( "Box", 1, 0.2, 10, 0.1 );

    else

    if ( scaling == "Percentage" )

    Box = Param( "Box ", 1, 0.2, 10, 0.1 ) / 100 * LastValue( C );

    else

    if ( scaling == "AVG True Range" )

    Box = Param( "Box", 1, 0.3, 5, 0.1 ) * LastValue( ATR ( 20 ) );

    shiftChart = 0;

    shiftLastClose = 1;

    shiftGrid = 7;

    shiftPriceAxis = 2;

    Reverse = Param( "Reverse", 3, 1, 5 );

    j = 0;

    PFL[0] = Box * ceil( Low[0] / Box ) + Box;

    PFH[0] = Box * floor( High[0] / Box );

    direction = 0;

    for ( i = 1; i < BarCount; i++ )

    {

    if ( direction[j] == 0 )

    {

    if ( Low[i] = PFL[j] + Reverse*Box )

    {

    j++;

    direction[j] = 1;

    PFH[j] = Box * floor( High[i] / Box );

    PFL[j] = PFL[j – 1] + Box;

    }

    }

    }

    else

    {

    if ( High[i] >= PFH[j] + Box )

    {

    PFH[j] = Box * floor( High[i] / Box );

    }

    else

    {

    if ( Low[i] 0, SelectedValue( Hi ) – box / 2, SelectedValue( Lo
    ) + box / 2 );

    //———————————————————————–

    // GRID CONSTRUCTION

    //———————————————————————-

    PlotGridLines = ParamToggle( “PlotdGrid”, “Yes! |No”, 1 ) ;

    if ( PlotGridLines )

    {

    begin = SelectedValue( BarIndex() );

    end = LastValue( BarIndex() );

    period = end – begin + 1;

    if ( begin = begin, IIf( direction == 1, screenHigh,
    screenLow ), Null );

    Plot ( VerticalGrid, “”, gridColor, styleStaircase | styleNoLabel, 0, 0, 1
    );

    format = 8.2;

    for ( n = LastValue( bot ); n =0; i–)

    {

    for (j = 1; j inlist[j] AND inlist[j-1] > 0)

    {

    temp = inlist[j-1];

    inlist[j-1] = inlist[j];

    inlist[j] = temp;

    }

    }

    }

    //inlist now sorted

    return inlist;
    }

    //Support and resistance levels.

    //using RSI

    //Load into Indicator Builder

    //Sensitivity of the levels can be changed with the variables

    //Can test different numbers live with the Param function ctrl-R with open
    pane

    RSIperiod = Param(“RSI p”,2,2,30,1);

    EMAperiod = Param(“EMA p”,5,3,10,1);

    Percent = Param(“ZIG %”,3,1,15,1);

    HHVperiod = Param(“HHV p”,6,2,10,1);

    NumLine = Param(“Num Lines”,2,1,20,1);

    //Base = RSI(RSIperiod);

    //Base = EMA(RSI(RSIperiod),EMAperiod);
    //base = CCI(14);
    Base = DEMA(RSI(RSIperiod),EMAperiod);

    GraphXSpace=0.5;

    //Plot(EMA(C, 10), “EMA-10”, colorRed, styleLine|styleThick|styleNoRescale);
    //Plot(EMA(C, 20), “EMA-20”, colorBlue, styleLine|styleThick|styleNoRescale);
    //Plot(EMA(C, 50), “EMA-50”, colorBlack, styleLine|styleThick|styleNoRescale);

    pp = (H + L + C)/3;
    //Plot(EMA(Ref(pp, -1), 3), “EMA pp”, colorWhite, styleLine|styleNoRescale);

    red = green = 0;
    for( i = 1; i <= numline; i++ )

    {

    ResBase = LastValue(Peak(Base,Percent,i));

    SupBase = LastValue(Trough(Base,Percent,i));

    Plot(ValueWhen( ResBase==Base, HHV(H,HHVperiod) ), "Resist Level", colorRed,
    styleLine|styleNoRescale);
    Plot(ValueWhen( supbase==Base, LLV(L,HHVperiod) ), "Support Level", colorGreen,
    styleLine|styleNoRescale);
    red = IIf(resbase == base, 1, 0);
    green = IIf(supbase == base, 1, 0);
    }

    r1[1] = 0;
    s1[1] = 0;
    for (i = 1; i <= numline; i++)
    {
    resbase = LastValue(Peak(base, percent, i));
    supbase = LastValue(Trough(base, percent, i));

    r = SelectedValue(ValueWhen(resbase==base, HHV(H, HHVperiod)));
    s = SelectedValue(ValueWhen(supbase==base, LLV(L, HHVperiod)));

    r1[i] = r;
    r1[i+numline] = s;
    //r1[i] = SelectedValue(ValueWhen(resbase==base, HHV(H, HHVperiod)));
    //s1[i] = SelectedValue(ValueWhen(supbase==base, LLV(L, HHVperiod)));
    }

    r1 = sort(r1);
    "R1-1: " + WriteVal(r1[1], 1.2);
    "R1-2: " + WriteVal(r1[2], 1.2);
    "R1-3: " + WriteVal(r1[3], 1.2);

    // find nearest three resistance lines (values above current high)
    near_r1[1] = 0;
    j = 1;
    for (i = 1; i SelectedValue(H))
    {
    near_r1[j] = r1[i];
    j = j + 1;
    }
    }

    “Linregslope of Close: ” + WriteVal(LinRegSlope(C, 3), 1.2);

    Current High: ” + WriteVal(H, 1.2);

    Nearest Resistance Levels:
    “;
    “R1: ” + WriteVal(near_r1[1], 1.2);
    “R2: ” + WriteVal(near_r1[2], 1.2);

    // find nearest three nearest support lines (values below current low)
    near_s1[1] = 0;
    j = 1;
    for(i=numline*2; i >= 1; i–)
    {
    if (r1[i] 0)
    {
    near_s1[j] = r1[i];
    j++;
    }
    }


    Current Low: ” + WriteVal(L, 1.2);

    Nearest Support Levels:
    “;
    “S1: ” + WriteVal(near_s1[1], 1.2);
    “S2: ” + WriteVal(near_s1[2], 1.2);

    // Test
    /*
    resbase = LastValue(Peak(base, percent, 1));
    supbase = LastValue(Trough(base, percent, 1));
    sup1 = ValueWhen(supbase==base, LLV(L, HHVperiod));
    res1 = ValueWhen(resbase==base, HHV(H, HHVperiod));
    “Resbase: ” + WriteVal(resbase, 1.2);
    “SUpbase: ” + WriteVal(supbase, 1.2);
    “Supp1: ” + WriteVal(sup1, 1.2);
    “Res1: ” + WriteVal(res1, 1.2);

    resbase = LastValue(Peak(base, percent, 2));
    supbase = LastValue(Trough(base, percent, 2));
    sup1 = ValueWhen(supbase==base, LLV(L, HHVperiod));
    res1 = ValueWhen(resbase==base, HHV(H, HHVperiod));

    “;
    “Resbase2: ” + WriteVal(resbase, 1.2);
    “SUpbase2: ” + WriteVal(supbase, 1.2);
    “Supp2: ” + WriteVal(sup1, 1.2);
    “Res2: ” + WriteVal(res1, 1.2);

    resbase = LastValue(Peak(base, percent, 3));
    supbase = LastValue(Trough(base, percent, 3));
    sup1 = ValueWhen(supbase==base, LLV(L, HHVperiod));
    res1 = ValueWhen(resbase==base, HHV(H, HHVperiod));

    “;
    “Resbase3: ” + WriteVal(resbase, 1.2);
    “SUpbase3: ” + WriteVal(supbase, 1.2);
    “Supp3: ” + WriteVal(sup1, 1.2);
    “Res3: ” + WriteVal(res1, 1.2);

    // End test

    “;
    “Base: ” + WriteVal(base, 1.2);
    WriteIf(red, “Resistance”, “”);
    WriteIf(green, “Support”, “”);

    “;

    */

    “;
    Title = Name() + “; ” + Date() + “: Support & Resistance Levels using RSI: ” +
    EncodeColor(colorGreen)+ “Support Levels are Green; “+EncodeColor(colorRed)+
    “Resistance Levels are Red: “+EncodeColor(colorBlack)+”Number of lines of each
    =”+WriteVal(numline,1) +
    EncodeColor(colorRed) + ”
    EMA-10: ” + WriteVal(EMA(C, 10), 1.2) +
    EncodeColor(colorBlue) + ”
    EMA-20: ” + WriteVal(EMA(C, 20), 1.2) +
    EncodeColor(colorBlack) + ”
    EMA-50: ” + WriteVal(EMA(C, 50), 1.2) ;

    SetChartBkGradientFill( ParamColor(“BgTop”, colorTeal),ParamColor(“BgBottom”,
    colorLightGrey));

    _N(Title = StrFormat(“{{NAME}} – {{INTERVAL}} {{DATE}} Open %g, Hi %g, Lo %g,
    Close %g (%.1f%%) Vol ” +WriteVal( V, 1.0 ) +” {{VALUES}}”, O, H, L, C));

    Hh = HHV(C,1) ;
    Ll = LLV(C,1) ;

    Hh = Ref(HHV(C,1),-1) ;
    Ll = Ref(LLV(C,1),-1);

    //Plot(Hh,”1 Bar High”,colorGreen,styleLine);
    //Plot(Ll,”1 Bar Low”,colorRed,styleLine);

    Plot(Close,”Close”,
    IIf(C > Hh, colorBrightGreen,
    IIf(C Hh;
    Sell = C < Ll;

    Buy = ExRem( Buy, Sell );
    Sell = ExRem( Sell, Buy );

    PlotShapes(shapeUpTriangle* Buy, colorGreen, 0, L );
    PlotShapes(shapeDownTriangle* Sell, colorRed, 0, H );
    "Jeevan's Advice: "+WriteVal(0);
    "Bullish if Closing Above : "+WriteVal(Hh,1.01);
    "Bearish if Closing Below: "+WriteVal(Ll,1.01);
    "Current Close : "+WriteVal(Close,1.0);

    _SECTION_END();

  8. @ Priya

    Thank you , Thank you , Thank you very much for the detailed , concise and to the point of clarification.

    Please,as promised by you, ( I am requesting you also), please post your explanation of other “greeks in options” with examples whenever time permits you. You are to the point and concise.

    Thanking once again for sharing the knowledge.

    God bless you.

    Regards,

    Veer

    1. @ Veer

      Welcome always. Sure I will post another article to explain other terms in options to my best, at the earliest.

  9. @Priya

    I am new to option strategies and i read your posts, just one thing would like to know that if i sell call or sell put do i have to buy stocks in cash in the end if the person who has purchased call or put exercise his option. Or as you have mentioned i can sell call or put and buy futures for the given stock will do.

    Second one can i square off the position when i want or i have to wait till the expiry.

    Kindly reply though it’s very basic question.

    Thanks and do share informative articles.

    Regards
    Manish

    1. @Manish

      This combination works for future with options.
      Generally people hedge stocks with options(call or put) accordingly. But if I understood correctly you asked if you already sold a call or put then to buy stocks in cash or not..this is not any type of hedging. Options itself is a hedging tool. Options tend to lose its value coz of the factors such as vega, theta, rho, etc ( value, time, interest rate respectively which I will discuss in the coming post). This kind of losing value we can encash using the strategy which I discussed about covered call and put.

      Second – regarding squaring off position – when you close the future then strictly cover the option that you might have shorted. Otherwise it will remain as naked shorting and its very risky. You can wait till expiry also. But when you take the position for covered call or put then take them at a time without time gap and also cover them at a time. Provided you always entertain entry or exit of both at a time, you can squareoff anytime.

  10. @priya

    Thanks for quick reply.

    My first question was that say i don’t have stocks in cash but still want to use the covered strategy by buying/selling future of the stock and buying/selling of call/put of that stock. So my question do i really need to have stock in cash or even if i have futures will do and than i can buy/sell call/put.

    Can you elaborate on second statement of covered call without time gap you mean without much delay, so i can first buy futures and than i can short call/put without much delay.

    Sorry for stupid questions !!!

    Really appreciate your help.

  11. Hi, what is the margin requirement for covered positions, are you paying margin on short call / put ? It should not be margined since it is not naked but brokers here don’t seem to understand it. Let me know how much margin is getting blocked, thnx.

  12. Hai Priya,I am a physically handicapped man..I was a wrong trader in nifty…I have almost quited the sharemarket..But your article made me very confident..I want to know more about this covered call strategy..Can you help me? I had lost 150000rs in option trading..can you give me some advices

  13. hi Priya,

    This is shankar from mumbai.
    wish to learn Option trading.
    do you conduct training on option strategies.

    if you are not from mumbai then pls suggest some one good trainer for option trading.

      1. dear rajendran sir,

        i need to add nse lot size and margin data to ami charts.

        is there any function to do it.

        i’m new to codes.

        my logic thinking is if name () = NIFTY-I, then lot size = 25, margin = 20,000, else if name = tatasteel then lot = 500, margin = 50,000, ……. etc

        i’m ready to change margin data on daily basis, even if its aprox. ok.

        can u help in coding this.

  14. SIR WHAT SHOULD BE STRETEGY IF BUY RCOM FUT AT140 & ASIANPAINT AT508 PLEASE CLEARIFY OPTION STATEGY SIMPLY , HOW WILL IT WORK PLEASE GUIDE THANKS.

  15. I wanted to go for a covered call on nifty futures.. your article gave me a courage.. thanks.

    Plz suggest which is better one Cover or Collar?

  16. Hi Priya

    I want to just sell ( for the time being SELLING PUT ONLY) nifty stock options as to avoid the time value effect. What are the points I should keep in mind for selecting the stock for short put.
    Regards

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