Good evening guys!
I would like to know what is the margin requirement for covered CE Selling?
Say, if I have one lot equity share or Index Future in my portfolio then how much margin will be required to sell CE of that particular Stock or Index Future?
What is the procedure to execute the same? Is it as good as normal CE Selling? Or some other way it is to be implemented for Cover selling?
Awaiting your kind knowledge on these.
For Covered Call, margin requirments will be same as the margin you need for Shorting a Option, here you don’t get any margin benefit for holding underlying shares.
Execution is same as normal CE Shorting, only that you need underlying shares equal to lot size of Options in your account.
That means I have to deploy roughly the double capital for cover option selling. Only benefit is the protection in case of ITM option.? Is there anything else to be accounted?
If your Short CE Option expires ITM, it will result in physical delivery, where you will be obliged to deliver shares.
I really appreciate your efforts.
If your covered call is close to being ITM, whats the preferred strategy? Let it expire and give delivery or make some adjustment? And if you chose to make an adjustment what would it be? Sell am ATM put to convert your covered call to a short straddle or close your existing call and sell a higher call or multiple calls (martingale) or some other strategy? Thanks
If you have the capital to buy 1 lot of Stock future/ delivery , with that capital , why don’t you explore the " cash secured -put " option , google it about cash secured put
Could you please elaborate little probable advantage of doing so… I guess you are quite competent to guide for risk averse trading strategy…
Please!
Well , assuming you are an investor , many investors , Institutions normally do covered calls for extra income . but problem with the covered call is that , you need to buy 1 lot or more of a stocks which are in FNO + margin money for , to sell the call against that stock , its kind of double margin requirement, so another option to reduce the capital requirement is cash secured put , if you buy PUT you need to sell the stock if exercised , if you sell PUT you need to buy the stock if exercised against you. If you do cash secured put , you need lesser capital compared to covered calls and also you have the option , either buy the stock or just simply book the profit or loss , that depends on your intention.
Please don’t ask me whether i have done this or not , i am just posting a link , to understand the cash secured PUT , is relevant to our Indian stock market also, this is just to understand it ,not for promotion of that You tube channel.
Thank you sir, for such clarification. Your point is very valid. The first post in this thread was mine concerning the same problem of double capital required in case of covered sell which is not simply going to help me to get expected return. Your cash secured put selling here makes a sense.
However, in case of index option selling I think it will be only cash settled… Isn’t it?
Yes right , Cash secured put is better for FNO stocks not for Indices options