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+90 Part II: Call Option Strategies 
+The writer should also be aware of whether or not the convertible is catlable 
+and, if so, what the exact terms are. Once the convertible has been called by the com­
+pany, it will no longer trade in relation to the underlying stock, but will instead trade 
+at the call price. Thus, if the stock should climb sharply, the writer could be incur­
+ring losses on his written option without any corresponding benefit from his con­
+vertible security. Consequently, if the convertible is called, the entire position should 
+normally be closed immediately by selling the convertible and buying the option 
+back. 
+Other aspects of covered writing, such as rolling down or forward, do not 
+change even if the option is written against a convertible security. One would take 
+action based on the relationship of the option price and the common stock price, as 
+usual. 
+WRITING AGAINST WARRANTS 
+It is also possible to write covered call options against warrants. Again, one must own 
+enough warrants to convert into 100 shares of the underlying stock; generally, this 
+would be 100 warrants. The transaction must be a cash transaction, the warrants 
+must be paid for in full, and they have no loan value. Technically, listed warrants may 
+be marginable, but many brokerage houses still require payment in full. There may 
+be an additional investment requirement. Warrants also have an exercise price. If the 
+exercise price of the warrant is higher than the striking price of the call, the covered 
+writer must also deposit the difference between the two as part of his investment. 
+The advantage of using warrants is that, if they are deeply in-the-money, they 
+may provide the cash covered writer with a higher return, since less of an investment 
+is involved. 
+Example: XYZ is at 50 and there are XYZ warrants to buy the common at 25. Since 
+the warrant is so deeply in-the-money, it will be selling for approximately $25 per 
+warrant. XYZ pays no dividend. Thus, if the writer were considering a covered write 
+of the XYZ July 50, he might choose to use the warrant instead of the common, since 
+his investment, per 100 shares of common, would only be $2,500 instead of the 
+$5,000 required to buy 100 XYZ. The potential profit would be the same in either 
+case because no dividend is involved. 
+Even if the stock does pay a dividend (warrants themselves have no dividend), 
+the writer may still be able to earn a higher return by writing against the warrant than 
+against the common because of the smaller investment involved. This would depend, 
+of course, on the exact size of the dividend and on how deeply the warrant is in-the­
+money.