| Cover Order | No Loss Strategy | Hedging | Example |

Mr.X bought 250 shares (one lot) of Reliance for Average Buy Price of Rs 1960/- To Hedge, he sold call option 2000 CE at a premium of Rs 10/- 

If the current market price (CMP) of Reliance crosses Rs 2000 by expiry, it has to be physically settled. It means, the shares he bought for Rs 1960 will be sold for Rs 2000. That is even if the CMP is Rs 2050, his sell price will be Rs 2000. Plus the premium he received is his. So, there is no loss as such. However, if he hadn't sold the option call 2000 CE, he could have sold reliance at CMP of Rs 2050, ie additional profit of Rs 50 x 250.

If it doesn't cross Rs 2000 by expiry, the premium of Rs 10 is his plus he will continue to hold Reliance at Rs1960 avg buy price.

Disclaimer : Stock Market Investments are subject to market risks. This is not an advisory. Please make your own well informed decisions.

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