Covered Call Strategy: Beating FD Returns and Mutual Funds

•

2% monthly return using Covered Call strategy in NIFTY BEEs: How can one do it and beat FD returns and mutual funds with ease? Step by Step explanation: Hope it's helpful to someone. A thread 🧵

1/ Covered Call? What is it? It is strategy which involves buying the index/stock and shorting a call near ATM. When you buy a stock you make money only when the stock goes up. Covered call takes the game to another level. You can make money if stock goes sideways too.

2/ Well why am I doing it? Without doing anything I will get 1-2% (12% annualised) returns on my capital. Bye Bye to FDs. You don't need to be an option geek or sit infront of terminal full day to do it. Just need 5 mins every week to make this return.

3/ How am I doing it? Step 1: Find quantity of NIFTY BEEs you need to buy. For that find contract value of NIFTY ATM contract. NIFTY was trading at 18750 when I was buying BEEs. The contract value is 18750*50 = 937500. (One lot size in NIFTY is 50)

4/ NIFTY BEEs was selling at 206.1 Rs. I bought 4550 qty so that the total value of NIFTY BEEs is same as contract value. You are doing this to ensure your exposure in NIFTY is compensated by selling call. This will ensure your portfolio won't bleed during violent up move.

5/ Step 2: Sell July Month expiry 19000 CE at 204.45 Rs. Why July month expiry? More premium. Why 19000 CE, you ask? It is a strong resistance according to technical and Open Interest analysis. If NIFTY moves down I can roll down the call.

6/ Now the pay off looks something similar to this. You can see there is substantial loss it there is a down move.

7/ Step 3: For downside insurance deploy put butterfly. Buy 1 Lot of 18000 PE, Sell 2 Lot of 18300 PE and Buy 1 Lot of 18600 PE. The payoff of put butterfly will look like this. It will compensate your loss (to an extent) in case NIFTY moves below 18600 level.

8/ Scenario 1 at expiry: By end of July NIFTY close at 19000. NIFTY Bees profit: 12,740 Rs Call Sell: Profit of 10,222 Rs Put butterfly loss: 2000 Rs Total profit: 20,962 Rs

9/ Scenario 2: By end of July NIFTY close at 19300. NIFTY Bees profit: 26390 Rs Call Sell: Loss of 4750 Put butterfly loss: 2000 Rs Total Profit: 19640 Rs

10/ Scenario 3: If NIFTY falls to 18500 NIFTY Bees Loss: 10,465 Rs Call sell profit; 10222 Rs Put Butterfly profit: 4000 Rs Net Profit: 4250 Rs

11/ Ok. What about adjustments in this strategy? The best adjustment you can do is : Do Nothing. If you believe that Indian markets will go up longterm, think of dips as an opportunity to invest at cheaper rates.

12/ If market moves down, you won’t be hurt much till 18000 level since put butterfly is there. If market moves up and you believe it will continue to do so you can roll up your calls. I thank @Suresh_kumar047 for sharing this strategy.

13/ You can pledge the NIFTY BEEs for margin and use the margin for trading. If you enjoyed this thread, then: → Follow me @sabareeshmdas for weekly info like this.