Optionalysis: Demystifying The Covered Call


After a while we’re back to Optionalysis. The last week was extremely volatile to trade, given the RBI and Fed actions, and the fact that I would only be able to send the letter with a large lag, which gives too little a time to be able to act. So there have been no positions.

The Covered Call

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  1. Dear Sir,
    If we sell put and the stock goes down, then there will be loss in both ways – loss due to decreased stock price & loss due to increased price of written put. How this is managed ?
    Dr.Suhas Kothavale

  2. Dear Sir,
    One more thing I wanted to mention about ETFs. If we buy Niftybees or Bankbees equivalent to one lot of the respective index, i.e. 500 Niftybees or 250 bankbees ( actually I am having 250 Bankbees @ Rs.945) and we want to sell the call option in this condition then Niftybees + ?% and Bankbees + ?% strategy will work.
    Please let me know figures at two ? marks in above examples.
    Dr.Suhas Kothavale

    • This will have to be tested further; I don’t know an easy way to back test other than getting the data and plotting it. Nifty and Banknifty tend to get very little premium on written options, so I would be quite careful about trying the strategy with them. Once in a while it makes sense of course.

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