Options Strategy
Income strategy
Covered Call - Nifty 50
Hold a long position in Nifty futures (or a large-cap portfolio) and sell an OTM call against it. The premium collected reduces your cost basis and generates income each expiry. Your upside is capped at the sold strike, but you are fully protected on the way down by the long position itself.
Leg 1 — LONG Nifty futures
24,000
Entry price (spot or futures)
Leg 2 — SELL OTM Call
24,500 CE
Receive premium: ₹180
Premium collected
₹13,500
Per lot (75 units)
Effective cost basis
23,820
Entry − premium per unit
Max profit
₹51,000
Capped at sold strike
Breakeven
23,820
Entry − premium per unit
Adjust your trade parameters
Below breakeven
Futures loss exceeds premium collected. The premium cushions the fall but does not fully protect it.
Between breakeven and strike
Futures gain plus full premium in your pocket. Best outcome zone for this strategy.
Above sold strike
Max profit capped. Futures gain offset by short call losses point for point above the strike.
Covered Call on Nifty futures vs equity portfolio: On Nifty futures, the margin requirement is significantly lower than owning the equivalent stocks. Selling the call against futures is the most capital-efficient way to run this strategy on Nifty. If you hold a large-cap portfolio correlated with Nifty, selling Nifty calls acts as a partial hedge and income generator on the index exposure.
How to execute on NSE
1
Be long Nifty futures (or hold an equivalent equity portfolio). One futures lot = 75 units of Nifty.
2
Choose an OTM call strike above your view of Nifty's likely range for the expiry. 1–3% above current spot is a common starting point.
3
SELL one lot of the OTM call. Premium received immediately reduces your effective entry cost.
4
If Nifty stays below the strike at expiry, the call expires worthless and you repeat the process next expiry compounding income over time.
5
If Nifty rallies above the strike, your futures profit is capped at the sold strike. You can roll the call to a higher strike before expiry to retain more upside.
Key risks to know
Capped upside: If Nifty rallies strongly above the sold strike, your futures profit is capped. You miss the additional gains above the strike. This is the primary cost of the strategy.
Downside not protected: The premium collected only partially offsets a fall in Nifty. If the market drops sharply, the covered call provides only a small cushion equal to the premium. The long position bears the full loss below breakeven.
Rolling risk: Rolling the call to a higher strike or later expiry to avoid assignment may lock in a loss on the short call. Always calculate the net credit or debit of the roll before executing.
Futures margin: Being long Nifty futures requires daily MTM margin. If Nifty falls sharply, you may face margin calls on the futures position even though the short call is profitable.