Covered Call option strategy
Covered Call holds a long future and sells an OTM Call against it. The call premium adds income and a small cushion, in exchange for capping the upside at the call strike.
Payoff at expiry
Nifty, lot size 65 · Nifty future 22,650 · 27 Oct 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| BUY | Future | – | 1 | 65 | 22,650 |
| SELL | OTM Call | 22,700 | 1 | 65 | ₹266.51 |
How it works
- Buy 1 lot of the future at 22,650.
- Sell 1 OTM call at the 22,700 strike for ₹266.51, collecting the premium.
- You receive a net ₹17,323 upfront for the position. Your maximum profit is ₹20,586.
Below 22,383 you lose, and the loss grows as Nifty falls.
Above 22,383 you profit, up to ₹20,586.
Set-up: Buy 1 lot Future and Sell 1 lot OTM Call with same expiration date.
What happens if Nifty moves
Profit or loss at expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 21,300 | −6% | −₹70,414 |
| 21,950 | −3% | −₹28,164 |
| 22,400 | −1% | +₹1,086 |
| 22,650 | Unchanged | +₹17,336 |
| 22,900 | +1% | +₹20,586 |
| 23,350 | +3% | +₹20,586 |
| 24,000 | +6% | +₹20,586 |
How the Greeks affect it
When to use
When you are mildly bullish and do not expect the underlying to rise far above the call strike before expiry.
- Generates regular income on a long position.
- Premium lowers the effective entry price.
- Simple to understand and manage.
Things to watch
- Upside is capped at the call strike.
- Downside risk is almost that of the future.
- Needs margin for the future.
Covered Call: questions
What is a Covered Call strategy?
Covered Call holds a long future and sells an OTM Call against it. The call premium adds income and a small cushion, in exchange for capping the upside at the call strike.
When should you use a Covered Call?
When you are mildly bullish and do not expect the underlying to rise far above the call strike before expiry.
How do you set up a Covered Call?
Buy 1 lot Future and Sell 1 lot OTM Call with same expiration date.
What is the maximum profit of a Covered Call?
Limited to the call strike less the futures price plus the premium received.
What is the maximum loss of a Covered Call?
Substantial if the underlying falls, reduced only by the premium received.
What is the breakeven of a Covered Call?
With Nifty at 22,650, the example on this page breaks even at 22,383 at expiry.