Covered Call is an options trading strategy where an investor holds a long position in an underlying asset, such as shares, and simultaneously sells a call option on the same asset. This strategy allows the investor to earn additional income through the option premium while potentially limiting the upside of the underlying asset. Covered calls are widely used by investors to enhance returns, manage risk, and generate steady income in equity markets.

The main objective of a covered call is to collect the premium from selling the call option. If the market price of the underlying asset remains below the optionís strike price until expiration, the option may expire worthless, allowing the investor to retain both the shares and the premium. However, if the asset price rises above the strike price, the shares may be called away, capping potential profits at the strike price plus the premium received.

Covered calls are considered a moderately conservative strategy. They are particularly useful for investors who anticipate limited upside in the underlying asset but want to generate income in a sideways or slightly bullish market. By selling call options against holdings, investors can enhance overall returns while still benefiting from partial capital appreciation.

In India, covered call strategies are executed in the derivatives segment of stock exchanges like NSE and BSE. Investors must understand the terms of the options contract, including strike price, expiration date, and lot size, as well as maintain sufficient margin in case of early assignment or adverse price movements. Regulatory oversight by SEBI ensures transparent trading, standardized contracts, and investor protection.

Covered calls are widely used in portfolio management to generate income, reduce the cost of holding stocks, and manage market risk. They can be combined with other strategies such as protective puts or spreads to balance risk and reward effectively. Investors must carefully analyze market conditions, volatility, and potential upside before implementing this strategy.

In summary, a covered call is an options strategy that combines owning an underlying asset with selling a call option on the same asset to earn premium income. Understanding its mechanics, benefits, and risks allows investors to enhance portfolio returns, manage risk, and make informed trading decisions within the regulatory framework of SEBI-governed Indian markets.