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+126 Part II: Call Option Strategies 
+Generally, the underlying stock selected for the reverse hedge should be 
+volatile. Even though option premiums are larger on these stocks, they can still be 
+outdistanced by a straight-line move in a volatile situation. Another advantage of uti­
+lizing volatile stocks is that they generally pay little or no dividends. This is desirable 
+for the reverse hedge, because the short seller will not be required to pay out as 
+much. 
+The technical pattern of the underlying stock can also be useful when selecting 
+the position. One generally would like to have little or no technical support and 
+resistance within the loss area. This pattern would facilitate the stock's ability to make 
+a fairly quick move either up or down. It is sometimes possible to find a stock that is 
+in a wide trading range, frequently swinging from one side of the range to the other. 
+If a reverse hedge can be set up that has its loss area well within this trading range, 
+the position may also be attractive. 
+Example: The XYZ stock in the previous example is trading in the range 30 to 50, 
+perhaps swinging to one end and then the other rather frequently. Now the reverse 
+hedge example position, which would make profits above 46 or below 34, would 
+appear more attractive. 
+FOLLOW-UP ACTION 
+Since the reverse hedge has a built-in limited loss feature, it is not necessary to take 
+any follow-up action to avoid losses. The investor could quite easily put the position 
+on and take no action at all until expiration. This is often the best method of follow­
+up action in this strategy. 
+Another follow-up strategy can be applied, although it has some disadvantages 
+associated with it. This follow-up strategy is sometimes known as trading against the 
+straddle. When the stock moves far enough in either direction, the profit on that side 
+can be taken. Then, if the stock swings back in the opposite direction, a profit can 
+also be made on the other side. Two examples \vill show how this type of follow-up 
+strategy works. 
+Example 1: The XYZ stock in the previous example quickly moves down to 32. At 
+that time, an 8-point profit could be taken on the short sale. This would leave two 
+long calls. Even if they expired worthless, a 6-point loss is all that would be incurred 
+on the calls. Thus, the entire strategy would still have produced a profit of 2 points. 
+However, if the stock should rally above 40, profits could be made on the calls as well. 
+A slight variation would be to sell one of the calls at the same time the stock profit is 
+taken. This would result in a slightly larger realized profit; but if the stock rallied back