What are your opinions on covered call vs buy and hold of NIFTY over a period of 10 years or more?
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Buying NIFTY future?
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Not NIFTY futures because of rollover costs, taxes, booking losses etc. I am talking about cash
There is no comparison between covered call and hold.
Basic idea is to do covered call is when you have holding.
So let’s say you have nifty holding you can sell far OTM call to earn extra money that’s it.
Selling Far OTM will earn some money for you + your holding values
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You are right.
What is far OTM according to you? How many points away from strike price?
In my opinion once you cross 200-300 points from strike price premiums become very low. Premiums come to 50 Rs. So multiply that by 75 you get something around 4000.
So implementing a covered call as an ‘income’ generating strategy is quite limited I think.
Far OTM is usually what you said. Also depends on the market trend. If you can predict market then sometime you might even sell ATM call and make huge money.
Also, if you are making only 4000, that is also not bad. Anyway your investment is sitting idle. So atleast you can make some money for your dinner 
I have been doing paper trading. My main concern is if I enter the market now and if the market crashes immediately. Then both the stock holding and premium income will be negligible.
That being said nobody knows when the market will crash.
Maybe if lot sizes were smaller then you would be comfortable in investing at this level I guess. The more money power you have the higher the chances of your profitability as far as F&O is concerned.
Market is going to be that way. Uncertain.
Do one thing don’t buy nifty now.
Sell Put option and wait till expiry. If put expire OTM then premium earning. Else buy nifty at the lower price.
Win-Win.
Now start selling call, make some money, if market falls invest again. Try to avg it.
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Good idea. The only problem is that if you sell puts at bargain prices (say 13000) either premium is very low like 1 Rs or it will be out of circuit.
At prices like 14000 premium is a bit better, maybe that is where I should sell puts. But I don’t think 14000 is a great price to go long on the cash side. It is better than 15000 though!
I think once the market crashes, and we buy NIFTY on the cash side. The corresponding sell calls will also be lower than currently, because we are in a bearish market. Now premiums are a bit high because we are in a bullish market.
Nobody will be buying calls in a bearish market, hence premiums will be low if we try to sell.
If you buy Nifty, say Nifty BEE’s and do covered call on it , its like having a Building and getting regular rent on it. %wise return will be less but over the period of time will become kind of a passive income.
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Is there enough liquidity in Niftybees, if we buy 1 lot of around Rs.8-9 lakh ? How much will be the slippages ?
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Its not about trading , its about capital appreciation +extra income , so i said %wise return is less , For example If Nifty bees value increases by 10% in a year , you can expect 4% on covered call , so your income increases by another 4% , total 14% in a year. covered call is for generating extra income , if you do it on Stocks instead of Indices return will be more.
Just to under stand it here is a video about CC, i am not promoting this in any way
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I agree covered call generates income, whether it is ‘extra’ income I doubt it.
In a covered call say you set aside 8 lakh in cash and 2 lakh for selling calls. And you get 10% on 8 lakh and 4% on 2 lakh.
On the other hand if you set aside 10 lakh entirely in cash, and it generates 10%. This comes similar to the income generated in the covered call. Plus covered call has taxes, liquidity concerns with NIFTY BEES etc.
In covered call during appreciation, the gain in the cash component comes after subtracting the loss made by the covered call. In buy and hold, you get all the appreciation.
Covered call is a decent strategy, but I don’t think it generates much more income than a buy and hold.
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Keep in mind that you own a stock or shares of an index. But you cannot overlook the risk that is fully or partially offset by the income generated from selling the call option. Because of this, it is buy and hold that I would recommend.
If the stock I hold goes crashes I lose money in both covered call and buy and hold. Even the income generated by covered call from selling calls won’t be enough to overcome the loss made by the stock. This is assuming I sell the stock when it crashes, hence realising losses.
So in that sense risk is the same, whether for covered call or buy and hold.
I don’t plan to sell even if the stock I own crashes. I plan to hold it for a long time.