Protective Call option strategy
Protective Call holds a short future and buys an OTM Call as insurance. It keeps the downside profit of the short future while capping the loss above the call strike.
Payoff at expiry
Nifty, lot size 65 · Nifty future 22,650 · 27 Oct 2026Legs
| Action | Option | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|
| SELL | Future | – | 1 | 65 | 22,650 |
| BUY | OTM Call | 22,700 | 1 | 65 | ₹266.51 |
How it works
- Sell 1 lot of the future at 22,650.
- Buy 1 OTM call at the 22,700 strike for ₹266.51, paying the premium.
- You pay a net ₹17,323 upfront for the position. Your maximum loss is ₹20,586.
Below 22,383 you profit, and profit grows as Nifty falls.
Above 22,383 you lose, up to ₹20,586.
Set-up: Sell 1 lot Future and Buy 1 lot OTM Call.
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 bearish but want protection against a sharp rally, such as around an event.
- Large downside profit with a known worst case.
- Works like insurance on a short position.
- No runaway loss in a rally.
Things to watch
- Call premium is a cost that decays if the market does not rise.
- Reduces returns in a slow fall.
Protective Call: questions
What is a Protective Call strategy?
Protective Call holds a short future and buys an OTM Call as insurance. It keeps the downside profit of the short future while capping the loss above the call strike.
When should you use a Protective Call?
When you are bearish but want protection against a sharp rally, such as around an event.
How do you set up a Protective Call?
Sell 1 lot Future and Buy 1 lot OTM Call.
What is the maximum profit of a Protective Call?
Substantial as the underlying falls, less the premium paid for the call.
What is the maximum loss of a Protective Call?
Limited to the call strike less the futures price plus the premium paid.
What is the breakeven of a Protective Call?
With Nifty at 22,650, the example on this page breaks even at 22,383 at expiry.