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Covered Call

Depending on the target price, the price at which an investor would want to record profits in the company, or the resistance levels, buy a stock at 100 and sell it at 100/110/120/130 CE.

Price Action setup - TCS

View the TCS daily chart. The 2280–2300 zone has served as a significant resistance during the past year. 6 rejections in the past year from these levels point to a robust supply zone.

How to sell covered calls on stock?

Depending on the goal price, the price at which the investor would want to book profits in the company, or the technical analysis resistance levels, buy a stock at 100 and sell it at 100/110/120/130 CE.

What should be done if an investor believes the goal price for the Hindustan Lever is 2200 and the current price is 2000?
    Size of Hindustan Unilever's lot: 300 Buy 300 shares of Hindustan Unilever at 2000. Investment total: $600,000. Trade 2200 CE for 56. There are a total of FIVE potential outcomes. Possible three normal outcomes after a month.
    1. Hindustan Unilever's life expectancy is above 2000, say 2100.
    2. Hindustan Unilever's share price expires at or around 2000 +/- 1%.
    3. Hindustan Unilever's life expectancy is less than 2000, maybe 1900.
      4. After a month, it's conceivable in two rare cases.
    4. According to crashes, Hindustan Unilever
    5. Hindustan Unilever Outperforms the index and closes at highest levels, say 2500
    • Case 1- 100 Rs nominal return on stock and 2200 CE expires at zero.
    • Case 2- Flat closing near 2000, Minimal nominal return/ Loss on stock
      • appreciation/depreciation, 2200 CE expires at zero.
    • Case 3- 100 Rs Nominal loss in stock, 2200 CE expires at zero.
    • Case 4- 600 Rs Nominal loss, 2200 CE expires at Zero.
    • Case 5- 500 Rs Nominal Gain on stock, 2200 CE expires at 300.
    In 4 out of 5 cases, 2200 CE expired worthless.

    Only in Case 5 , 2200 CE will be in loss, but lets take into consideration the case 5 in detail-

    A-Stock gains 2500-2000= 500

    B- CE loss 300-56= 244

    Net gain- 256

    Summary- In all cases , 2200 CE money will be the income.

    We need to repeat the process every month and keep on reducing the cost of investment.

    Points to be considered for covered call- 1-Stock selection (Vast topic ), but few points can be taken into consideration- Large cap, Debt free, Dividend paying, Good promotor holding, Around the year business, ethical and honest management. 2-Options chain should be liquid enough.

Price Action Setup - TCS

View the TCS daily chart.

The 2280–2300 zone has served as a significant resistance during the past year.

6 rejections in the past year from these levels point to a robust supply zone.

Here are a few interesting things to note: Whenever it reached these levels, it decreased by anything from 10% to 15% to even 35% in March (during the Covid/lockdown period).

Let's concentrate on the period from July 24 to July 28, 2020, during which time the time zone returned to 2300.

After this time, it underwent consolidation from July 29, 2020, to September 7, 2020.

For the first time, the price did not decline as previously, and it stayed around 2300 for over 1.5 months.

This was a very strong accumulation by smart players as they were now ready to buy near all time high levels.

Price then broke the range with Volumes on 8th September and it started trading above all time highs which indicated that TCS has entered a new range.

Coming to the targets for this breakout, previous range was of 800 points, hence the new range will be 2300+800 = 3100.