How can I execute a covered call in TCS? – K Padmaja Rani

TCS (₹4,152.35): Covered call strategy is when you buy the underlying stock and sell a call option. The option will, to some extent, act as a hedge. Some traders consider this as an income generating strategy.

So, in TCS, you can buy the shares and then sell a call option. The important point to note is that the number of shares that you buy should be equal to the lot size (or in multiples of it) of the derivative contracts. The lot size of futures and options contracts on TCS is 175 shares.

For instance, you can buy TCS shares (175 numbers) at ₹4,150 and sell 4500-strike call (February), which is currently at ₹14.85. The higher the strike price of the option, the lower will be the premium and higher the chances for the premium becoming zero on expiry.

In the above example, I considered a call that is ₹350 away from the current level because the monthly Average True Range (14 period) of TCS is around 360 and February expiry is one month away.

Here, the outflow in buying 175 shares of TCS is ₹7,26,250. The inflow that you receive on selling one lot of 4500-strike call will be about ₹2,600. In case the stock remains at the same level of ₹4,150 until the February contracts expire, the entire premium of ₹2,600 you received will be the profit. The profits can be higher if the share price rises from ₹4,150 but lies below ₹4,500 on expiry and vice versa.

I have a long position on Coforge futures (January) bought for ₹8,956.60. Should I exit or hold? – Palani S

Coforge (₹9,234.60): The stock, which has been in a downtrend since the beginning of this year, saw a rebound in price last week after finding a support at ₹8,200. The January futures bounced off ₹8,200 and closed at ₹9,229.05 on Friday.

The broader uptrend seems to have resumed and so, the probability of a rally is high. Hence, you can consider holding futures. But exit at ₹9,800, a potential resistance. Consider placing a stop-loss at ₹8,600. You can go long again if futures surpass ₹9,800.

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