Learn with ETMarkets: Options demystified 501–covered calls

economictimes.indiatimes.com:

From unraveling the significance of options in gauging market sentiment through tools like PCR, option chain analysis, and Max pain, Maya now felt it was the opportune time to acquaint Tara with some commonly employed option strategies embraced by traders. Link to previous article: https://ecoti.in/Vee1AZ «Hey Tara,» Maya said with a warm smile as they resumed their conversation, finding their seats comfortably in the conference room while savouring their freshly brewed cups of coffee, «let's talk about some options strategies! It might sound intimidating, but I promise it's not as complex as it seems. Let's start with covered calls, which is a relatively conservative options strategy.» Tara eagerly nodded, «Sounds great, Maya! Please continue.»Covered Calls: «A covered call is a strategy where you own the underlying stock and simultaneously sell a call option on that same stock.

By doing this, you're 'covering' the call option with the stock you own. The idea is to generate income from the premiums you receive from selling the call option, providing some downside protection to your stock position», explained Maya. «Okay, but how does it work?» asked Tara.

«Imagine you have 2000 shares of Infosys, currently priced at Rs.1345 per share,» Maya explained. «Now, let's say Infosys recently reached a high of 1358, but you believe the price won't go higher than that anytime soon. In such a scenario, you can employ a strategy by selling a call option.