What is a Covered Call?
A Covered Call means you already own shares and you sell a call option against those shares to earn additional premium income each month. It's one of the most conservative, beginner-friendly options strategies — and it's how professional investors turn flat or sideways holdings into income-generating positions.
You bought 75 TCS shares at ₹3,200 a year ago. The stock is now at ₹3,500 and has been sideways for months. You're happy holding long-term but want your shares to work harder. You sell a ₹3,700 CE for ₹120, collecting ₹9,000 immediately. If TCS stays below ₹3,700, you keep the shares AND ₹9,000. Do this every month and you're generating 3–4% additional monthly return on top of any stock appreciation.
Like renting out a flat while you're abroad. The flat (your shares) is yours — you still own it. The tenant pays you monthly rent (the option premium). If the tenant likes the flat so much they want to buy it (stock assigned), you sell at the agreed price. Not ideal for full upside capture, but you still made money on both the rent and the original purchase.
At a Glance
Max Profit
(Strike − Buy Price) + Premium
Max Loss
Stock can fall (same as holding)
Breakeven
Stock Buy Price − Premium
Type
Credit · Defined Risk
How to Set It Up
| Action | Type | Strike | Expiry | Qty |
|---|---|---|---|---|
| Buy | Shares | Already in your Demat | — | 1 Lot equivalent |
| Sell | Call (CE) | OTM Strike — 5–10% above price | 21–35 DTE | 1 Lot |
Payoff at Expiry
Covered Call
📊 Covered Call — Payoff Chart + P&L Calculator
Stock Purchase Price: 21000 · Current Price: 22000 · Call Strike Sold: 23000 · Premium Received: 120 · Lot Size: 75 · Price at Exit: 22200
When Should You Use This Strategy?
✓ When to Use / ✕ When to Avoid / ◉ IV / ◷ DTE
4 use items · 3 avoid items
Key Points
- Think of it as giving your portfolio a monthly salary. Done consistently, Covered Calls can generate 15–25% additional annual returns on existing holdings.
- If the stock gets "called away" (assigned) — celebrate! You made money on the stock appreciation AND the premium.
- Choose a strike you'd genuinely be happy selling at. Don't pick too low just to collect a fatter premium.
- Roll the strike up-and-out if the stock approaches your strike before expiry — extend duration and adjust upward.
