Strategy library · Options income
Covered call on NSE stocks: selling calls against shares you own
By Anoop Thomas · Last updated
In short
A covered call means holding shares and selling a call option on the same stock against them, usually out of the money and expiring within a month. You keep the premium. If the stock stays below the strike, the call expires worthless; if it rises above, your gains stop at the strike. On NSE you need a full lot of shares for each call, and the shares still carry their full downside.
In the US a covered call is a retail staple because one contract covers 100 shares. In India the maths is different. NSE stock options trade in lots, and for most F&O stocks one lot is worth several lakh rupees, so a covered call starts with owning that many shares. Hold 200 shares of a stock whose lot is 500 and you can’t write a covered call on it at all. Check NSE’s current lot list before you plan anything; lot sizes are revised periodically.
It suits a long-term holder with a full lot who is happy to cap the upside a month at a time in exchange for premium. It doesn’t protect you in a fall, since the premium cushions the first few rupees and nothing more. And if you’d be upset to see your shares delivered away in a rally, don’t sell the call.
The rules, step by step
A sensible starting template, not a proven system. Change any number, then test it before trusting it.
- 1
Setup
Own at least one full lot of an F&O stock you’d hold anyway. Sell one call per lot of shares, never more calls than lots held.
- 2
Entry
In the first few days after the previous monthly expiry (the last Tuesday of the month, as of November 2026), sell the current-month call at the first strike at least 5% above the stock price, or near 0.20–0.25 delta.
- 3
Roll or exit
If the call has lost 80% of its premium before expiry, buy it back and sell next month’s. If it is in the money near expiry and you want to keep the shares, buy it back before the close.
- 4
Stop on the shares
If the stock closes 10% below your purchase price (or below its 200-day average, whichever you choose), buy back the call first, then sell the shares. Never leave a naked short call behind.
- 5
Position sizing
Size the share position, because that is the real risk. One lot of a ₹1,400 stock with a 500-share lot is ₹7 lakh; if that is more than about a quarter of your portfolio, you have a concentration problem before you have an options trade.
- 6
Filters
Skip months when the company’s quarterly results fall before expiry, unless you have tested that case. Results moves are where the capped upside costs most.
Say it in plain English
Paste this into INDfolio’s AI strategy builder and it becomes a backtestable strategy.
I hold 500 shares of an NSE F&O stock, which is one lot. After each monthly expiry, sell one lot of the current-month call at the first strike at least 5% above the stock price. If the call loses 80% of its premium early, buy it back and sell the next month’s call. If the stock closes 10% below my purchase price, buy back the call first and then sell the shares. Skip months where quarterly results fall before expiry.Backtest this free
Free plan · no card · NSE data included
Payoff at expiry: covered call on a hypothetical ₹1,400 stock
Hypothetical inputs: you own 500 shares bought at ₹1,400 (assume that is one lot; check NSE’s current list), worth ₹7 lakh. You sell one monthly 1,500 call at ₹18 and collect ₹9,000. Your breakeven on the stock drops to ₹1,382. Maximum profit is (1,500 − 1,400 + 18) × 500 = ₹59,000.
| Stock at expiry (₹) | Shares alone (₹) | Covered call (₹) |
|---|---|---|
| 1,300 | −50,000 | −41,000 |
| 1,382 | −9,000 | 0 |
| 1,400 | 0 | +9,000 |
| 1,450 | +25,000 | +34,000 |
| 1,500 | +50,000 | +59,000 |
| 1,600 | +1,00,000 | +59,000 |
Illustrative prices, not quotes and not a backtest; costs excluded. Above ₹1,500 the shares are delivered at the strike at expiry unless you buy the call back first. Model other strikes in the option payoff calculator.
Owning the shares doesn’t cover the margin
Here Indian covered calls part ways with the textbook. Holding the shares doesn’t reduce the margin on the short call. Zerodha’s support page, for one, says there is no margin benefit for covered calls because the exchanges don’t offset stock option positions against shares in your demat. So the call needs its own F&O margin, the same as a naked short call.
The usual workaround is to pledge the shares, which then count as collateral after a haircut. Some brokers also want part of the F&O margin in cash, or charge interest on the shortfall, so read your broker’s pledge and collateral rules before assuming the shares pay for everything.
Settlement is the other difference. NSE stock options are physically settled: if the call finishes in the money, you deliver the shares at the strike. In a covered call that is the planned outcome, as long as you actually planned it.
Where it breaks
The downside is all the stock’s. In the example, a fall to ₹1,300 still loses ₹41,000; the premium covered ₹9,000 of a ₹50,000 drop. Selling calls every month on a falling stock can feel like income while the share price does the real damage.
The upside cap is the cost people talk about less. If the stock jumps 15% on results, you keep the move up to the strike and hand over the rest. Repeat that monthly and you keep the small premiums while giving away the big up-months. On a stock that trends up hard, that can cost more than all the premium collected, and a test on the stock’s own history will show you whether it did.
Cheap call, expensive delivery
The option side costs little: one sale and maybe one buyback a month, ₹20 per order at the large discount brokers, STT of 0.15% on the premium sold (₹13.50 on the example’s ₹9,000), plus small exchange charges and GST. Compare brokers in the brokerage calculator.
Delivery is where it gets expensive. Physically settled stock options carry STT of 0.1% of the contract value for both buyer and seller, so delivering 500 shares at ₹1,500 (₹7.5 lakh) means ₹750 of STT. Some brokers also charge more brokerage on physical delivery; Zerodha’s settlement policy page lists 0.25% of the delivery value, which would be ₹1,875 here. If you don’t want to pay that, buy the call back before expiry.
Tax is a separate question. Premium income and the share sale can be taxed under different heads, and how long you’ve held the shares changes the answer. Ask a CA before running this on a long-held position.
Testing a covered call honestly
Test the combination, not the call alone. You need the stock’s daily history and monthly option prices at the strikes your rule would have chosen, across at least one sharp fall and one flat year. Compare it with simply holding the shares over the same period. If the covered call only comes out ahead in flat years, you have learned when to use it.
Vary the strike distance (3%, 5% or 8% out of the money, or a delta target) and whether you roll early. Distrust tests that use prices from illiquid far strikes, where the last trade can be hours old. INDfolio’s backtesting covers NSE equity and options history with delivery and F&O charges deducted (we build it, so weigh that accordingly).
Educational content, not investment advice. The rules and numbers on this page are an illustrative template, not a backtest result or a recommendation. Derivatives carry a high risk of loss — SEBI’s own studies of F&O traders found that the large majority of individuals lose money. We build INDfolio AI, so weigh our view accordingly.
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