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 25,151 · 23 Nov 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| BUY | Future | – | 1 | 65 | 25,151 |
| SELL | OTM Call | 25,200 | 1 | 65 | ₹178.25 |
How it works
- Buy 1 lot of the future at 25,151.
- Sell 1 OTM call at the 25,200 strike for ₹178.25, collecting the premium.
- You receive a net ₹11,586 upfront for the position. Your maximum profit is ₹14,778.
Below 24,973 you lose, and the loss grows as Nifty falls.
Above 24,973 you profit, up to ₹14,778.
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 |
|---|---|---|
| 23,650 | −6% | −₹85,972 |
| 24,400 | −3% | −₹37,222 |
| 24,900 | −1% | −₹4,722 |
| 25,150 | Unchanged | +₹11,528 |
| 25,400 | +1% | +₹14,778 |
| 25,900 | +3% | +₹14,778 |
| 26,650 | +6% | +₹14,778 |
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: backtested on NSE data
Real backtests of this structure on NSE data, each with its exact rules, a year of results before and after costs, and where it made and lost money.
- Monthly covered call13 trades
- Poor man's covered call19 trades
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 25,151, the example on this page breaks even at 24,973 at expiry.
Watch: Covered Call videos
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