Covered call?

sethuramansid · #1 29th June 2006, 09:33 PM

Dear senior members,

What is meant by covered call? Is that a type of option? I heard from the books that covered call means you keep the underlying stock in your account and sell option(which not need to be squared off). But, when there is no delivery in option, how it works?

Agilent · #2 29th June 2006, 11:29 PM

Quote:

Originally Posted by sethuramansid

Dear senior members,

What is meant by covered call? Is that a type of option? I heard from the books that covered call means you keep the underlying stock in your account and sell option(which not need to be squared off). But, when there is no delivery in option, how it works?

There's no such thing as a covered call. There is of course, covered writing (selling) of a call, or a put.

That distinguishes it from an uncovered ('naked') writing of the call or the put.

When u write an option (a call or a put), you have "a sufficient holding in the underlying shares equivalent to (or greater than) that implied by the option, or in case of a put, sufficient cash to purchase the underlying shares at the exchange price" ("Traded Options" by Peter Temple)

In contrast, in 'naked' writing, u do not have sufficient stock ( in case of call ) or sufficient cash (in case of puts) in the event that the option holder exercises it against you.

I am not exactly sure of the option exercise process in India, but do know that retail investors can indulge in partially naked writing against hefty cash margins (Vince : am I right ?). I have done this myself on a number of occasions, with mixed results.

AGILENT

sanjayguptadelhi · #3 31st July 2006, 04:50 PM

Covered call is a combination of long position in stock through physical or future and short position in option by selling call option. it is a very popular premium earning strategy for option traders and is very effective if used properly.

For example if you have Reliance 300 shares(1 lot) purchased in your account either physical or future let us say at today's price of 980. Now you sell a call option of 1000 strike at a premium of Rs.25 per share which was today's price. you would be in a covered call position.

If Reliance stays above 955 you will be in profit at month end. if reliance remains below 1000 on expiry you pocket total premium of Rs.25 per share and your long position is intact.

If you need to know more pl email me.

There are many more profiatable strategies available.

vince · #4 1st August 2006, 06:53 AM

Quote:

Originally Posted by Agilent

There's no such thing as a covered call. There is of course, covered writing (selling) of a call, or a put.

That distinguishes it from an uncovered ('naked') writing of the call or the put.

When u write an option (a call or a put), you have "a sufficient holding in the underlying shares equivalent to (or greater than) that implied by the option, or in case of a put, sufficient cash to purchase the underlying shares at the exchange price" ("Traded Options" by Peter Temple)

In contrast, in 'naked' writing, u do not have sufficient stock ( in case of call ) or sufficient cash (in case of puts) in the event that the option holder exercises it against you.

I am not exactly sure of the option exercise process in India, but do know that retail investors can indulge in partially naked writing against hefty cash margins (Vince : am I right ?). I have done this myself on a number of occasions, with mixed results.

AGILENT

On the dot Agilent . What you call it does not matter as long as the underlying concept is clear.

The excercise process is very simple. If you have written an option you pay the difference in cash between strike and closing spot price on that day if assigned. If it expires the option is automatically excercised by the exchange. ( Read no brokerage. )

shouvik_sanyal2000 · #5 1st August 2006, 01:31 PM

hi all,
im a new member here and have been trading options for the last three months.i would really appreciate if any of the senior members would guide me regarding the strategy to be adopted this month.last month, i had a windfall, buying 3100 call on 24th at rs.3 which i sold at rs.55 on the expiry day.

sanjayguptadelhi · #6 1st August 2006, 05:12 PM

you cannot expect such windfalls every month until and unless you are very strong with technical analysis.

aca_trader · #7 1st August 2006, 05:29 PM

Quote:

Originally Posted by shouvik_sanyal2000

hi all,
im a new member here and have been trading options for the last three months.i would really appreciate if any of the senior members would guide me regarding the strategy to be adopted this month.last month, i had a windfall, buying 3100 call on 24th at rs.3 which i sold at rs.55 on the expiry day.

Can you please guide me as to how such a wonderful call was made.

Thanks & Regards,
--Ashish

shouvik_sanyal2000 · #8 3rd August 2006, 04:00 PM

Quote:

Originally Posted by sanjayguptadelhi

you cannot expect such widfalls every month until and unless you are very strong with technical analysis.

Dear sanjay,
what u say is quite right. However , there will be a windfall this month too. market is going to crash, nifty will break 2800. i have bought 10 puts of strike price 3000 at rs. 35. keep watching and enjoy

hsarora47 · #9 1st September 2006, 04:44 AM

let us start a regular discussion on this safe strategy to make reasonable profit.
i have already posted a new thread.

Agilent · #10 1st September 2006, 10:15 PM

Quote:

Originally Posted by shouvik_sanyal2000

Dear sanjay,
what u say is quite right. However , there will be a windfall this month too. market is going to crash, nifty will break 2800. i have bought 10 puts of strike price 3000 at rs. 35. keep watching and enjoy

Shouvik... how did u fare ?

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