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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

A covered call strategy involves holding the underlying shares and doing what else?

A covered call means holding the shares and selling a call option on them. The premium earned gives extra income, but the investor gives up gains above the strike price, so it suits a neutral to mildly bullish view.

  1. ABuying a call option on the same shares
  2. BSelling a call option on the same sharesCorrect
  3. CBuying a put option on the same shares
  4. DSelling a put option on the same shares

Explanation

A covered call is long shares plus a short call. The premium received adds income and gives limited downside cushion, but upside above the strike is given up. Long shares plus a long put is a protective put.

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