Covered Call Strategy: A Simple Guide for Everyday Investors | Firstock

Introduction

Have you ever wished your stocks could earn you regular income, even when prices don’t move much? What if your portfolio could work like a rented house, giving you monthly rent while you still own the property?
That’s exactly how the covered call strategy works.

In this detailed guide, we’ll break down what is covered call, how covered call strategy options work, who should use it, and how to execute it using a trading app in India with a SEBI registered broker. No complex jargon, no confusing math—just clear, practical explanations.

Let’s be honest—most people think options trading is risky and complicated. But did you know there’s one strategy that many long-term investors quietly use to boost returns without gambling?

That strategy is the covered call strategy.

Instead of chasing quick profits, this approach focuses on steady income, especially when markets are flat or slightly bullish. Whether you’re new to options or already investing through a trading app, this strategy can add an extra income layer to your portfolio.

Learn covered call strategy, covered call strategy options & what is covered call. Start options trading using a trading app in India with a SEBI registered broker.

What Is Covered Call?

So, what is covered call in simple terms?

A covered call means:

You own shares of a stock
You sell a call option on the same stock

Because you already own the shares, your call option is “covered.” That’s why it’s considered one of the safest options strategies.

👉 You earn option premium upfront, regardless of what the stock does next.

Why Is Covered Call Strategy Popular?

The covered call strategy is popular because it:

Generates regular income
Works well in sideways or slow markets
Reduces portfolio volatility
Is beginner-friendly compared to other options strategies

For Indian investors using a trading app in India, this strategy feels familiar—buy stocks first, then earn extra income on them.

How Covered Call Strategy Works (Step-by-Step)

Let’s break it down into simple steps:

Buy 100 shares of a stock (or already own them)
Sell 1 call option of the same stock
Receive option premium instantly
Wait until option expiry
Either keep shares or sell them at strike price

That’s it. No fancy tools. No guessing market direction.

Covered Call Strategy Options Explained Simply

In covered call strategy options, two things matter most:

Strike Price

Higher strike = lower premium, more upside
Lower strike = higher premium, less upside

Expiry Date

Short-term options give faster income
Monthly options are most popular in India

Choosing the right option is like choosing how much rent you want versus how long you want the lease.

Real-Life Analogy: Covered Call as Rental Income

Think of your stock like a house you own.

You don’t want to sell it right now
So you rent it out
You earn rent every month

Even if property prices don’t rise, you still earn income.
That’s exactly how the covered call strategy works with stocks.

Who Should Use the Covered Call Strategy?

This strategy is ideal for:

Long-term investors
Retired individuals seeking income
Traders wanting low-risk options exposure
Investors using a SEBI registered broker

If you already invest via a trading app, this strategy fits naturally into your routine.

When Is the Best Time to Use Covered Call Strategy?

The best time is when:

Market is sideways
Stock is slightly bullish
Volatility is moderate to high

Avoid using covered calls in strong bull markets, as your upside gets limited.

Profit, Loss & Risk in Covered Call Strategy

Profit

Option premium
Limited upside on stock

Loss

Stock price fall (partially offset by premium)

Risk

Lower than naked options
Still exposed to stock downside

That’s why choosing strong companies is crucial.

Covered Call Strategy Example (Indian Market)

Let’s say:

You own 100 shares of Reliance at ₹2,500
You sell a 1-month call option at ₹2,600
Premium received = ₹40 per share

Scenarios

Stock stays below ₹2,600 → You keep premium
Stock crosses ₹2,600 → Shares sold, profit capped
Stock falls → Loss reduced by premium

Simple, right?

Using a Trading App to Execute Covered Calls

Modern trading apps in India make covered calls easy:

One-click option selling
Strategy builders
Margin calculators
Real-time risk analysis

Choose a user-friendly trading app to avoid execution mistakes.

Role of a SEBI Registered Broker

Always trade options through a SEBI registered broker because:

Funds are protected
Transparent charges
Regulatory compliance
Safer trading environment

Never compromise on safety for lower brokerage.

Advantages of Covered Call Strategy

✔ Regular income
✔ Lower risk than naked options
✔ Easy to understand
✔ Works with long-term investing
✔ Ideal for Indian markets

It’s like earning interest on your stocks.

Limitations & Common Mistakes to Avoid

❌ Expecting unlimited profit
❌ Using volatile or weak stocks
❌ Ignoring market trends
❌ Selling deep ITM calls without planning

Discipline matters more than prediction.

Covered Call vs Other Options Strategies

Strategy	Risk	Income	Complexity
Covered Call	Low	Steady	Easy
Naked Call	Very High	High	Complex
Straddle	High	Market-dependent	Complex
Cash Secured Put	Medium	Steady	Moderate

For beginners, covered call strategy options win hands down.

Conclusion

The covered call strategy is one of the smartest ways to earn consistent income from stocks you already own. It’s safe, practical, and perfectly suited for Indian investors using a trading app in India with a SEBI registered broker.

If you like predictable returns more than adrenaline-filled trading, covered calls might be your perfect match. Why let your stocks sit idle when they can pay you regularly?

Frequently Asked Questions (FAQs)

1. What is covered call strategy in simple words?

It is an options strategy where you sell call options on stocks you already own to earn extra income.

2. Is covered call strategy safe for beginners?

Yes, it is one of the safest options strategies when done through a SEBI registered broker.

3. Can I use covered call strategy using a trading app?

Absolutely. Most modern trading apps in India support covered call strategy options.

4. Do I need a lot of capital for covered calls?

You need to own at least 100 shares of a stock, so capital depends on stock price.

5. Is covered call better than intraday trading?

For steady income and lower stress, covered call strategy is often better than intraday trading.