Covered Call
Writing a call option against shares already owned, so the delivery obligation is covered by the holding.
Formula
Maximum Gain = (Strike - Purchase Price + Premium) x Lot Size; Break-even = Purchase Price - Premium
Unit
₹
In depth
A covered call converts uncertain upside into certain premium income, which makes it a sale of potential rather than a source of free money — the frequent framing as risk-free income is wrong. The downside is barely reduced: the premium cushions a fall by its own size and no more, so a 30% decline is a 30% decline less a small offset. Its payoff diagram is identical in shape to a short put, which surprises people who consider one conservative. It suits a holder willing to sell at the strike and content to forgo anything beyond it.
Worked example
Own 1,000 shares at ₹500 and write a 520 call for ₹12, collecting ₹12,000. If the stock reaches ₹560, the shares are called away at ₹520, so the gain is capped at (20 + 12) x 1,000 = ₹32,000 rather than ₹60,000.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Covered Call” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.