Covering losses by selling Call option

I had bought few shares of Dr Reddy’s in which I’m having a huge loss almost 700 rs/share @ the current price 2074.
Is this possible to cover losses up to some extent by selling call option (31 May, Strike price 2400).

For say I sell 1000 qt @ 7 rs I’ll get 7000 rs as premium and I’m sure it won’t go above 2407 in the month of May.
Am I right?

There is one ** Stock repair strategy**
Search google "options trading strategies moneycontrol"
download the pdf.

This strategy is used to cover up for losses made on long stock position. After the long position suffered
losses on stock price fall, a trader will implement this strategy in order to bring down the breakeven price and
capping his further losses thereby increasing his probability of loss recovery.
Buy 1 ATM Call
Sell 2 OTM Call Options

Hi @Shivam_Gupta

You are absolutely right. If you are sure that the price won’t cross 2400 you can make a neat Rs. 5900 on 1000 qty. This is how your payoff graph will look like.

As you can see, you are writing options - so it does involve infinite loss potential.

My 2 cents - There is no such thing as absolutely sure :wink: Though you can work around volatility, average true range and probability.

Thanks for your analytic explanation. As I have stocks in long position so it won’t make much difference (I can cover it from my permanent stocks) :slight_smile:

One more query
I’ll get 5900 in all situations if share price remains below 2400?
and what if share price rise up to 2800 in between and again fall below 2400?
ie it reaches to 2800 on May 15 and again falls to 2200 on its expiry. Will it make any difference on my premium (5900) that I got?
And How to close this position? (Do I need to buy call option of 1000 shares before its expiry or it will close automatically on its expiry)

Yup!! :slight_smile:

And that is where it gets interesting. You will be bearing a notional loss of 4.25Lakh. You may get a margin call and zerodha admin may square off your position making your notional loss to real loss.

However, lets say you have enough money to avoid a margin call and it falls back below 2400 you are again green with Rs. 5900.

All options are correct. If you think you have enough profits in hand, you buy the call option. If you think you cannot further hold the loss you panic and buy the call option. Zerodha gives a margin call. You leave it to expiry and exchange settles it. All are valid ways to exit … but each situation has very different effect on your overall PnL.

That is why risk management is so important. Do try Risk - Strategize Your Trades to build those scenarios and see pay off graphs in realtime.

The best trade is one whose all possibilities considered lets you sleep in the night.

Thanks again… What if I sell both call and put option together of the same quantity.

I think it will be a shield order doesn’t matter in which direction share moves, I’ll enjoy my premium.
ie what if I sell 1000 qt of PUT @18 and CALL @7

I’ll be having 7000+18000 (Total- 25000 :slight_smile: :slight_smile: ) as a premium and will be secure from its movements. Am I right?

Before I answer, stop hoping that you will get the best bid price. The best you can hope is LTP or mid point of ask and bid. Conservatively, you should settle for 5.9 and 10.8! Notice that as you go way Out of the Money, options become illiquid with wide bid / ask spread.

What you are looking for is called - Short Strangle. And you are right about its effect of shielding yourself from small movements either ways and giving you profit of 16700 with those conservative bid prices I mentioned.

Thanks :slight_smile:

What if it moves drastically in either direction? Will it have some negative impact?
And just wondering why all people don’t try this to get a sure and certain profit?

Yup … same negative impact. A drastic loss on either side. Pay offs for your reference -

Damn … your spread is so big that it looks like a straddle when it is actually a strangle. Anyhow, i will be really bummed if I don’t get a 5-star on my app now. All your scenarios … delivered … right?

  1. The notion of infinite loss.
  2. Unable to quantify risk.
  3. Missing risk management.

Happy Trading! But I will caution you if you are starting with selling options … Know it in and out. Though I like the fact that you think in those terms.

you will get 5 Star for sure. :slight_smile:

your app is there for its quantification and risk management :stuck_out_tongue_winking_eye:

Honoured. Period. :slight_smile:

It seems that you haven’t downloaded and read that pdf i recommended.
Basically you are reinventing a wheel by applying your mind.
All strategies are already there

how many shares of DrReddy do you have ?

dont do revenge trade

option selling needs extra margin. considering risk involved.

for hedging purpose buying put is far better than selling calls. as you know selling ce have unlimited risk, but will hedge to an extent only, where buying pe will limit risk and hedge the fall in portfolio.


you could try a covered call collar for your situation. view is sideways to bearish.

No doubt it will be a net debit at this point on your hedge but considering that pharma sector is down overall, it would be worth it.

If (right now) I have bullish view on nifty and plan to buy NIFTY call of 8500 and its LTP is 2202.15.
It means I’ll be having profit only when the NIFTY value goes above 10702 (2202.15+8500).
Am I right up to here?
But right this moment NIFTY is at 10716.55 which means right after purchasing 8500 call I’m at profit of 14.4 Rs (10716.55-10702.15).
If I purchase and sell it (at this moment, if possible), I can earn a huge amount.
Am I right? Please correct me if Im wrong.

or this mismatch is for a while only and will get corrected soon after the market begins tomorrow ?