Covered Call Writing
Introduction
In a covered call trading strategy, the trader sells a call option while also owning the underlying security. The strategy limits the upside profit potential of the underlying but does not offer protection if the stock price of the underlying falls. The major risk with the strategy is having to hold underlying for a long period of time if price falls and inability to do call option writing until it regains the purchase price.
In the below analysis, we have done sectoral research on NIFTY 50 stocks, identifying the potential sectors where covered call writing can be intuitive. The major metrics used to identify suitable sectors are average drawdown days and beta.
