It happens quite often to all of us that we buy the shares of a company and then find the stock price going down. What do you do if you are still positive on the long term prospects of the stock? You can sell higher calls and this strategy is called covered call strategy. Let us go to the SBI example. You have purchased SBI at 300 but the stock is down to 250. While you are confident of the future prospects of SBI, you can use options to reduce your cost of holdings. Each month you can sell higher out of the money (OTM) calls and eat away the premium. The premium earned each month reduces your cost of holding. If the stock price goes up you have nothing to worry as you are holding on to your cash position. On the downside, you continue to reduce your cost of holding on to the shares.