Monday 2 Feb 2026, the day after the Budget. The March Nifty future settled at 25,297.40. Monday 30 Mar 2026: Nifty closed at 22,331.40, 11.7% under that. One lot of the future lost Rs 1,92,790. The holder who had also sold the 25,500 call lost Rs 1,68,126, because the premium of 379.45 a unit barely dented the fall. The holder who had also bought the 25,100 put lost Rs 38,139. Same index, same lot, three results. This lesson is about those two extra legs: what each one pays for, what it costs and what it gives away. Every figure is from NSE end of day files and dated, so nothing is live and none of it is a view on where Nifty goes.

3By the end you can

  1. Draw the payoff of a covered call, a protective put, a collar and a cash secured put.
  2. Say why a Nifty covered call uses a future as its cover and a stock covered call uses shares.
  3. Explain why a call premium is a small cushion and not a floor.
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The idea, plainly

Two extra legs, two jobs. Sell a call against what you hold and you collect premium now, and in return hand over the gains above the strike. Buy a put against what you hold and you pay premium now, and in return get a floor under the losses. Covered and protective both mean the option sits against a position you already have.

What is a covered call?

You hold the underlying and sell a call on it. Covered means you can deliver if the call finishes in the money. An index cannot be delivered, since Nifty options settle in cash, so here the cover is a Nifty future. Stock options differ. SEBI moved them to physical settlement in 2018 and 2019, so a covered call on a stock is shares in your demat account against a short call, and an in the money call at expiry means delivering the shares. The payoff: you keep the premium whatever happens, you give up the gains above the strike, and you keep almost all of the losses. The premium is a small cushion. It is not a floor.

Covered call
Breakeven =
entry − premium
Max gain =
strike − entry + premium

A covered call caps the gain and cushions the loss only by the premium

Payoff of a Nifty future with a sold call: gains stop at the call strike, losses below the entry are cushioned only by the premiumPayoff of the position at expiry. Breakeven at 24,918. Maximum profit in the range ₹37,833, maximum loss ₹73,996; at least one end of the range is still sloping, so the true extreme lies outside it. Spot 25,088.Profit or loss, ₹ for the whole position−₹75,000−₹50,000−₹25,000₹0₹25,000₹50,00024,00025,00026,000Nifty at expirySpot 25,088BE 24,918Max profit ₹37,833No floor
One lot of the March future bought on 2 Feb 2026 and the 25,500 call sold, payoff at expiry on 30 Mar 2026. Source: NSE end of day data, computed by RupeeCase. As of 2 Feb 2026.

What is a protective put?

You hold the underlying and buy a put on it. Below the put's strike, the put gains what the future loses, so the loss stops there. Above the strike the put expires worthless, so you keep the gain less the premium. The gap from your entry down to the strike is the deductible and the premium is the price of the policy.

Protective put
Max loss =
entry − strike + premium
Breakeven =
entry + premium

A protective put sets a floor and keeps the upside, for a fee

Payoff of a Nifty future with a bought put: losses stop at the put strike less the premium, gains above the entry are kept less the premiumPayoff of the position at expiry. Breakeven at 25,687. Maximum profit in the range ₹73,352, maximum loss ₹38,139; at least one end of the range is still sloping, so the true extreme lies outside it. Spot 25,088.Profit or loss, ₹ for the whole position−₹50,000−₹25,000₹0₹25,000₹50,000₹75,00024,00025,00026,000Nifty at expirySpot 25,088BE 25,687Max loss ₹38,139No cap
One lot of the March future bought on 2 Feb 2026 and the 25,100 put bought, payoff at expiry on 30 Mar 2026. Source: NSE end of day data, computed by RupeeCase. As of 2 Feb 2026.

What is a cash secured put, and a collar?

A cash secured put sells a put and sets aside what it would cost to take delivery. On a stock put that cash is the strike times the lot, because assignment means buying the shares. On a Nifty put, which settles in cash, secured only means margin. It keeps the premium if the index stays above the strike and takes the losses below it. Put call parity makes it a close cousin of the covered call: the payoff has the same shape.

A collar does both jobs. Hold the future, buy the put, sell the call. The call premium pays for much of the put, and the position lives in a corridor: a floor below, a ceiling above.

A collar fixes a floor and a ceiling, and here it cost almost nothing in premium

Payoff of a Nifty collar: a flat floor below the put strike and a flat ceiling above the call strikePayoff of the position at expiry. Breakeven at 25,307. Maximum profit in the range ₹12,525, maximum loss ₹13,475. Spot 25,088.Profit or loss, ₹ for the whole position−₹15,000−₹10,000−₹5,000₹0₹5,000₹10,000₹15,00024,00025,00026,000Nifty at expirySpot 25,088BE 25,307Max profit ₹12,525Max loss ₹13,475
The future, the 25,100 put bought and the 25,500 call sold, payoff at expiry on 30 Mar 2026. The put cost 389.35 and the call paid 379.45, a net cost of 9.90 a unit. Source: NSE end of day data, computed by RupeeCase. As of 2 Feb 2026.

Worked example: two months, four positions

First the fall. On 2 Feb 2026 the March chain had 56 days to run and a lot of 65 units. The strike nearest the future was 25,300. The 25,500 call and the 25,100 put sit the same distance either side of it, and the 25,200 put for the cash secured put sits half as far below. The March expiry fell on Monday 30 Mar, a day early, because Tuesday 31 Mar was a trading holiday. The index closed at 22,331.40, settled on the index close for expiries before 7 Dec 2026.

One lot, 2 Feb to 30 Mar 2026Premium a unitResult
Future alone, bought at 25,297.40None−Rs 1,92,790
Covered call: future plus sold 25,500 callReceive 379.45−Rs 1,68,126
Protective put: future plus bought 25,100 putPay 389.35−Rs 38,139
Collar: future, 25,100 put, 25,500 callNet pay 9.90−Rs 13,475
Cash secured put: sold 25,200 put aloneReceive 429.55−Rs 1,58,538
One lot, 10 to 30 Jun 2026Result
Future aloneRs 40,667
Covered call, sold 23,450 callRs 28,376
Protective put, bought 23,050 putRs 25,116
Collar, 23,050 put and 23,450 callRs 12,825
Cash secured put, sold 23,150 putRs 18,132
Read 3 more paragraphs, 235 words

The call's premium covered 12.8% of the fall and no more. The future lost Rs 1,92,790. The put paid Rs 1,79,959 at expiry and cost Rs 25,308. The pair lost Rs 38,139, which is the floor: the 197.40 points from entry down to the strike, plus the premium. The collar lost Rs 13,475, less than the protective put, because the call premium paid for nearly all of the put. The sold put lost most of what the future lost, since it too is a bet that the index would not fall.

Now the rise. On 10 Jun 2026 the June chain gave a future of 23,240.10, a sold 23,450 call at 226.65, a bought 23,050 put at 239.25 and a sold 23,150 put at 278.95. On 30 Jun 2026 Nifty closed at 23,865.75, 2.7% above the future.

In the rising month every extra leg made less than the bare future. The covered call made Rs 12,292 less, the put cost Rs 15,551 of premium, and the collar did both. The sold put kept its premium and nothing more. Two months show the shape and nothing about how often either happens. All prices are settlement prices, and before charges: STT falls on the premium of each sold option and on the intrinsic value of any long leg exercised at expiry, at rates that rose on 1 Apr 2026.

3 terms this section turns on

3 terms this section turns on3 terms this section turns on. Covered call: A sold call written against a holding or a future, so the seller can deliver if the call is exercised. Protective put: A bought put held against a holding or a future, which sets a floor under the loss. Collar: A holding with a bought put and a sold call, so the loss and the gain both stop at fixed levels.Covered callA sold call written against a holding or afuture, so the seller can deliver if the callis exercised.Protective putA bought put held against a holding or afuture, which sets a floor under the loss.CollarA holding with a bought put and a sold call,so the loss and the gain both stop at fixedlevels.
From the module glossary; every term is in the Learn glossary too. Source: Module 17.3, Covered call, protective put and cash secured put.

The common mistake

The belief: A covered call is free income on what you already own. Look at the fall. The call's premium of 379.45 a unit covered 12.8% of it and the holder lost Rs 1,68,126 a lot. Look at the rise. The covered call made Rs 12,292 less than the bare future. The premium is pay for two things: the cap on the upside and the loss you keep below. Academic work on covered calls, listed under Go to the source, reads the strategy as equity exposure plus a short bet on volatility. That is a risk with a price, not a gift.

Key takeaways

  • A covered call sells the gains above the strike for premium now.
  • The premium cushions a fall a little. It never sets a floor.
  • A protective put sets a floor and keeps the upside, for a fee.
  • A collar sells the call to pay for the put, and fixes a corridor.
  • Nifty options settle in cash, so a future is the cover. Stock options deliver shares.
  • In a rising month every extra leg earned less than the bare future.
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Before you trade. Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. Read the SEBI study