Covered calls: how funds are shielding their capital in a tough market

Mutual funds including arbitrage funds, equity savings funds and specialized investment funds (SIFs) are increasingly using covered call options strategies to preserve capital and generate incremental income amid market volatility triggered by geopolitical tensions since 28 February. Outstanding net domestic institutional investor covered call sales have risen from pre-war levels of under 300,000 contracts to 433,542 as of last Friday, peaking at 556,084 on 24 March when the Nifty fell about 10 percent month-on-month to 22912. Fund managers from ITI Mutual Fund, Aditya Birla Sun Life AMC and Kotak Mahindra AMC said aggressive covered call use signals a relatively negative market view, with Brent crude surging 26 percent to 91.68 dollars per barrel adding to macro concerns for India which imports about 85 percent of its crude needs.