What is a Covered call strategy in Stock Options - Options trading strategies #shorts #krinu

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#coveredcall
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#optionstrading

In a covered call strategy the Investor holds a Stock , simultaneously he sells or writes one OTM (Out of the Money ) call option of the same asset and receives the premium from the call buyer

if the stocks price is neutral or side ways or the price of the stock trades below the OTM Call options Strike value throughout or at the time of the Expiry of the contract; now the Call buyer may not exercise his right because if he does it; he will incur more loss ; hence he will give up the premium he had paid to the Call seller .

Thus this investor benefits from a Neutral or sideways movement of the stock price too , apart from the Long position he holds in the stock

On the flip side, if the Stock trades above the Strike value and the Call buyer exercises his right , he will incur loss in the Call option he sold but his gains from the Long position can offset his loss to an extent

This strategy is executed and considered effective if the investor's outlook on the Stocks movement is Neutral or side ways for a specific period of time .

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