Nifty covered call - My experiment

A covered call strategy is one where an underlying stock is bought and then its ATM call option is sold. The value of underlying stock should be equal to 1 lot size of options e.g. if the stock's option lot has 25 shares then 25 shares need to be bought.  This trade can be taken on monthly basis using monthly expiring option. There are 3 possible outcomes after the call option is sold:

1. Stock goes up b/w previous expiry date and current expiry date- In this case any increase in stock value will be offset by loss in call option

2. Stock remains at same price b/w previous expiry date and current expiry date - In this case there will be no increase in stock value but the entire call option premium will be profit

3. Stock goes down by next expiry date - In this case there will be drop in stock value but the entire call option premium will be profit

This strategy works on assumption that over long term the underlying stock will give gains in spite of fluctuations in stock price over short term and idea is to pocket the call option premium on monthly basis.

Same kind of strategy can be run on Nifty options after doing investment in Niftybees whose value depends on Nifty. For selling 1 lot of Nifty call options equivalent amount of Niftybees should be bought. 

Taking an example assume Nifty is at 25000 and Niftybees is trading at 250. Now 1 Lot of Nifty has 75 options. Total notional value of 1 lot of Nifty then will be = Lot size * Nifty value = 25,000 * 75. Number of Niftybees to be bought will be = Nifty notional value/ Niftybees value = 25,000*75 /250 = 7500 so 7500 Niftybees need to be bought to do covered call strategy with 1 lot size

In my case I always took 3% away Nifty ATM call option for next monthly expiry on the expiry day of current month expiry around 3 PM. To explain say Nifty is trading at 25800 on monthly expiry day at 3 PM. So 3% away ATM option is at 25800 *1.03 = 26574 = 26550 . Now you can sell 26500CE or 26600 CE option also as options ending in 100 have more liquidity as compared to ones ending with 50. 

I am running this strategy from Jan monthly expiry and the results for various months are documented below for 1 Lot:

Expiry	Entry  date	Exit  date	CE Sold	Entry  price	Exit price	PnL  per lot
Jan 25	26-Dec-24	30-Jan-25	NIFTY25JAN24400CE	192.5	0	14,438
Feb 25	30-Jan-25	27-Feb-25	NIFTY25FEB23900CE	214.8	0	16,110
Mar 25	28-Feb-25	27-Mar-25	NIFTY25MAR23200CE	57.5	404	-25,988
Apr 25	27-Mar-25	24-Apr-25	NIFTY25APR24300CE	110	0	8,250
May 25	24-Apr-25	29-May-25	NIFTY25MAY25000CE	181	0	13,575
Jun 25	29-May-25	26-Jun-25	NIFTY25JUN25600CE	151.65	0	11,374
Jul 25	26-Jun-25	31-Jul-25	NIFTY25JUL26300CE	107	0	8,025
Aug 25	01-Aug-25	28-Aug-25	NIFTY25AUG25600CE	51.05	0	3,829
Sep 25	28-Aug-25	30-Sep-25	NIFTY25SEP25350CE	81	0	6,075
Oct 25	30-Sep-25	28-Oct-25	NIFTY25OCT25800CE	24.4	136.2	-8,385
Nov 25	29-Oct-25	25-Nov-25	NIFTY25NOV26800CE	79.4	0.3	5,933
Total						53,236

In Oct'25 the CE option was taken 6% away from ATM as past 6 months had given positive returns. 

Now coming to returns when this strategy was started on 26-Dec-25, Niftybees closing price was 265.67 and Nifty was at 23750.2. In order to take position in 1 lot, an investment of 6705 Niftybees unit was needed (Rs 17,81,317). On 25-Nov-25 (November month expiry), Niftybees closing price was 292.68. So value of 6,705 Niftybees unit was 19,62,419. 

Taking these values, return on Niftybees is 10.2% and return on call options(Rs 53,236) is 3% of original capital invested thereby giving a total return of 13.2% in 11 months.