Operational Guide to Covered Call Writing

Abstract

This article would help as an operational guide to covered calls. It covers basic concepts which help understand one of the option strategies (a rather complex subject). Further, it covers accounting of covered calls in books of the company and also briefly touches upon the tax treatment. Normally, covered calls are advised at times when equity markets are high to earn better premium. However, during current situation also one can benefit from writing calls. If one evaluates equity market in the Covid-19 lockdown period, it can be observed, that the markets are devoid of any logic and economics and are more sentiment driven. On 1st Jun 2020, the Nifty50 index rose substantially, reasons “first phase of lifting the lockdown” (Ref news brief on Investing.com). But unfortunately, markets fail to understand that the manufacturing activities have been shut for past almost 2 months now. One need to evaluate whether the corporate activities, demand, jobs, etc. would support the earnings of the companies to sustain the share price movement on day to day basis.