Tatasteel is currently trading at 169. Lets say, I hold 5500 quantity of Tatasteel shares.
I sell Tatasteel 180 CE for January 2026 expiry at 1.5 rs premium.
Now if Tatasteel breaches 180 mid-month in January, do i need to immediately sell my shares and close the covered call? Or can i still hold it till expiry?
You can hold, if you have the margin for all the losses(+potential losses).
What do you mean by potential loss? How will it give me a loss, if my loss from option is offset by profit from underlying shares? I think you misunderstood the concept of covered call.
That is upto you… if you have the margin, you can hold till expiry and give delivery. But there’s a cost of 0.25% charged for physical delivery.
Not offset until you sell. You do need margin to enter a covered call and if that margin is provided by pledging the same shares, then it might cover, but you’ll probably still need extra margin for the volatility and the losses on the ce(Options don’t move linearly with stocks).
Also,
When Tata steel breaches your strike price at 180 you should not square off your positions. The premium on CE180 will be high at that time. So you have to wait till expiry.
On the other hand if you feel Tata steel may not settle above 180 by expiry you can book the profit in the stock and loss and in the CE and exit with overall profits.
When I write this Tata steel has reached 189 I think. Anyway the strategy only matters not the case in particular