---
title: "Covered call, protective put and collar on Nifty, explained"
description: "Covered call, protective put, cash secured put and collar on dated NSE Nifty chains: what each pays for, costs and gives away, in a fall and a rise."
source_url: "https://www.rupeecase.com/learn/path-17/module-17-3-covered-call-and-protective-put"
---

[Path 17 3 of 23](/learn/path-17/)Covered call, protective put and cash secured put[Next 17.4](/learn/path-17/module-17-4-why-hedge)

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.

Watch in the terminal: what are the four lead figures? A short tutorial on sample data.

## 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

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

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

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 2026 | Premium a unit | Result |
| --- | --- | --- |
| Future alone, bought at 25,297.40 | None | −Rs 1,92,790 |
| Covered call: future plus sold 25,500 call | Receive 379.45 | −Rs 1,68,126 |
| Protective put: future plus bought 25,100 put | Pay 389.35 | −Rs 38,139 |
| Collar: future, 25,100 put, 25,500 call | Net pay 9.90 | −Rs 13,475 |
| Cash secured put: sold 25,200 put alone | Receive 429.55 | −Rs 1,58,538 |

| One lot, 10 to 30 Jun 2026 | Result |
| --- | --- |
| Future alone | Rs 40,667 |
| Covered call, sold 23,450 call | Rs 28,376 |
| Protective put, bought 23,050 put | Rs 25,116 |
| Collar, 23,050 put and 23,450 call | Rs 12,825 |
| Cash secured put, sold 23,150 put | Rs 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

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.

Watch in the terminal: how does the app call a stock large or small? A short tutorial on sample data.
**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](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html)

What does Covered call, protective put and cash secured put cover?Two extra legs against a position you hold. What each one pays for, what it costs, and what it gives away. It works through The idea, plainly, Worked example: two months, four positions, The common mistake, Key takeaways. It is module 17.3 of Path 17, Strategies and Hedging, about 8 minutes of reading, free.

TTry it

## Payoff builder, on the same example.
Legs from a dated chain, the expiry and before expiry curves, breakevens and the charges. Dated NSE end of day data, nothing live, no orders.

**Payoff builder**, Nifty, 2 Feb 2026, 30 Mar 2026 expiry.

[Open the payoff builder](/learn/tools/payoff-builder?chain=NIFTY_2026-02-02_2026-03-30&preset=covered-call)

  AF&O on RupeeCase

## Hedging only, in development
F&O at RupeeCase will do one job: protect a portfolio you already own, by a rule published before it runs. No speculation, no naked option selling, no leveraged bets. It is not available yet.

  [How hedging will work](/hedging)[Sign up for RupeeCase](https://invest.rupeecase.com/signup)

  [No hedgeFalls with the marketWith a putA floor, for a premiumIllustration with made up numbers, not a product and not a recommendation.](/hedging)

QQuick check

## 10 questions, 7 to pass.
Each attempt draws 10 of the 15 questions in this module's bank, and a retake draws a fresh set. A pass gives this module's Certificate of Completion. Your result stays on this device and counts towards the Path 17 certificate.

7 of 10 correct passes module 17.3

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CCheck yourself

## Path 17 so far.
Your quick check results on this device, stop by stop.

Stop 3 of 23 on Path 17

Strategies and Hedging: every live stop, this module ringed. Source: RupeeCase Learn, Path 17.

1. [17.1Reading and building payoff diagramsNot yet](/learn/path-17/module-17-1-payoff-diagrams)
2. [17.2Vertical debit spreads: bull call and bear putNot yet](/learn/path-17/module-17-2-bull-call-and-bear-put-spreads)
3. [17.3Covered call, protective put and cash secured putNot yet](/learn/path-17/module-17-3-covered-call-and-protective-put#quiz)
4. [17.4Why and when to hedge: insurance in plain numbersNot yet](/learn/path-17/module-17-4-why-hedge)
5. [17.5Straddles and strangles, long and shortNot yet](/learn/path-17/module-17-5-straddles-and-strangles)
6. [17.6Credit spreads: bull put and bear callNot yet](/learn/path-17/module-17-6-credit-spreads)
7. [17.7Iron condor and iron fly on NiftyNot yet](/learn/path-17/module-17-7-iron-condor-and-iron-fly)
8. [17.8Butterflies and broken wing butterfliesNot yet](/learn/path-17/module-17-8-butterflies)
9. [17.9Option calendar spreadsNot yet](/learn/path-17/module-17-9-option-calendar-spreads)
10. [17.10Choosing a strategy by view: direction, volatility and timeNot yet](/learn/path-17/module-17-10-strategy-by-view)
11. [17.11Adjustments: what they really do to riskNot yet](/learn/path-17/module-17-11-option-adjustments)
12. [17.12Expiry day: gamma, theta, settlement and the rulesNot yet](/learn/path-17/module-17-12-expiry-day)
13. [17.13Hedging a stock portfolio with Nifty putsNot yet](/learn/path-17/module-17-13-hedging-with-nifty-puts)
14. [17.14Collars and put spreads as cheaper hedgesNot yet](/learn/path-17/module-17-14-collars-and-put-spreads)
15. [17.15Hedging mutual fund portfolios: beta and basisNot yet](/learn/path-17/module-17-15-hedging-mutual-fund-portfolios)
16. [17.16Ratio spreads and backspreadsNot yet](/learn/path-17/module-17-16-ratio-spreads-and-backspreads)
17. [17.17Diagonals and double calendarsNot yet](/learn/path-17/module-17-17-diagonals-and-double-calendars)
18. [17.18P&L attribution by GreeksNot yet](/learn/path-17/module-17-18-pnl-attribution-by-greeks)
19. [17.19Event hedging with event varianceNot yet](/learn/path-17/module-17-19-event-hedging)
20. [17.20Tail hedging and long dated Nifty optionsNot yet](/learn/path-17/module-17-20-tail-hedging)
21. [17.21Hedging an option selling book: wings, vega, gaps and margin stressNot yet](/learn/path-17/module-17-21-hedging-an-option-selling-book)
22. [17.22Kelly and sizing for option strategiesNot yet](/learn/path-17/module-17-22-kelly-sizing)
23. [17.23Risk for option books: scenarios, stress, VaR, ES and margin shocksNot yet](/learn/path-17/module-17-23-option-book-risk)
24. [TPath test, 30 questionsNot yet](/learn/path-17/module-17-23-option-book-risk#pathTestSection)

Path 17 in reading time: 215 minutes over 23 modules

Minutes of reading per module, this one in amber. Source: RupeeCase Learn, Path 17.

    Explore next

## Put the module to work.

* [Free module 17.1Reading and building payoff diagrams7 min read](/learn/path-17/module-17-1-payoff-diagrams)
* [Free module 17.4Why and when to hedge: insurance in plain numbers8 min read](/learn/path-17/module-17-4-why-hedge)
* [Free module 17.14Collars and put spreads as cheaper hedges9 min read](/learn/path-17/module-17-14-collars-and-put-spreads)
* [QuestionCovered call, protective put and collar: how do they work?A short answer with a dated chart](/learn/questions/covered-call-protective-put-collar)
* [Path 17Strategies and hedging23 modules live, 0 coming next](/learn/path-17/)
* [ToolOption payoff builderLegs on a dated Nifty chain, breakevens and charges](/learn/tools/payoff-builder)

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SSources

## Go to the source.
7 sources, NSE the most cited

The publisher of each source listed below. Source: Module 17.3 source list.
1. [NSE, equity derivatives contract specifications (index options cash settled, stock derivatives, lot sizes)](https://www.nseindia.com/static/products-services/equity-derivatives-contract-specifications) NSE
2. [SEBI circular of 11 April 2018, Review of framework for stocks in derivatives segment (physical settlement)](https://www.sebi.gov.in/legal/circulars/apr-2018/review-of-framework-for-stocks-in-derivatives-segment_38629.html) SEBI
3. [SEBI circular of 31 December 2018, Physical settlement of stock derivatives](https://www.sebi.gov.in/legal/circulars/dec-2018/physical-settlement-of-stock-derivatives_41482.html) SEBI
4. [NSE Clearing, margins: SPAN, initial margin and extreme loss margin](https://www.nseclearing.in/risk-management/equity-derivatives/margins) NSE
5. [NISM, Series VIII Equity Derivatives, test objectives (option strategies)](https://www.nism.ac.in/revamp-nism/test-objectives-revised-nism-series-viii-equity-derivatives-certification-examination/) NISM
6. [Israelov, R. and Nielsen, L. N., Covered Calls Uncovered, Financial Analysts Journal, 2015](https://doi.org/10.2469/faj.v71.n6.1) Paper
7. Hull, J., Options, Futures, and Other Derivatives, Pearson (trading strategies involving options) Book

GTerms

## 5 terms from this module.
Covered callA sold call written against a holding or a future, so the seller can deliver if the call is exercised.
Protective putA bought put held against a holding or a future, 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 fixed levels.
Cash secured putA sold put with the cost of taking delivery set aside. On a cash settled index put it means margin.
Physical settlementSettlement by delivering the shares. Stock derivatives on NSE settle this way since 2018 and 2019. Index options settle in cash.
[All 230 terms in the glossary](/learn/glossary)

[Question people askCovered call, protective put and collar: how do they work?A short answer with a dated chart](/learn/questions/covered-call-protective-put-collar)[Related module17.1 Reading and building payoff diagrams7 min, Beginner](/learn/path-17/module-17-1-payoff-diagrams)[Related module17.4 Why and when to hedge: insurance in plain numbers8 min, Beginner](/learn/path-17/module-17-4-why-hedge)[Pillar guideDerivatives and Quant115 modules across paths 12 to 19](/learn/derivatives)

Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.