Covered Call
You own the stock and rent it out. You sell someone the right to buy it from you at a higher price, pocketing a small fee now. If it stays flat or rises gently, you keep the fee. If it rockets past the price, you miss the extra upside.
How it's built
Hold the underlying (or futures) and sell an OTM call against it to earn premium income.
Illustrative payoff at expiry on a NIFTY-like underlying (spot 24,000, 7d, 13% IV). The shape is the point — open it in the Strategy Lab to tune spot, time and volatility live.
When to use it
You own the stock/future, expect mild upside or sideways movement, and want to harvest premium. Best when IV is elevated.
Capped at (short strike − entry) + premium received. You give up the upside above the short strike.
Substantial — the underlying can fall; the premium only cushions a little.
Common mistakes
- Selling a call too close to spot and capping all your upside.
- Forgetting that the downside risk of the long underlying is still large.
- Selling calls when IV is very low (premium not worth the capped upside).