A short call, or call writing, is an options strategy in the Indian stock market where an investor sells a call option, granting the buyer the right to purchase the stock at a predetermined strike price within a specific period. When selling a call option, the investor receives a premium as compensation but takes on the obligation to sell the stock at the strike price if the option is exercised by the buyer. This strategy is most often used in bearish or neutral market conditions where the investor anticipates that the stock price will stay below the strike price, allowing them to keep the premium as profit without needing to sell the stock. NSE and BSE support a range of call options on individual stocks and indices, making the short call a viable strategy for investors looking to generate income in stable or slightly declining markets.
However, short calls come with a significant risk profile, as potential losses can be substantial if the stock price rises well above the strike price. Since the call writer must provide the stock at the strike price regardless of how high the market price rises, the losses are theoretically unlimited, and as such, this strategy is considered high-risk and generally suited for experienced traders with a bearish view. In covered call strategies, an investor may mitigate risk by holding the underlying stock, but even then, short calls require a careful assessment of market conditions, volatility, and stock fundamentals. NSE and BSE provide real-time data and analytical tools that help investors evaluate options pricing, volatility, and historical performance, ensuring a more informed approach to short call positions. Despite the risks, the short call can be an effective way to generate steady income from premiums in markets expected to remain flat or decline, but it requires constant vigilance and strong market knowledge.
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Source: SEBI Study
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