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training_data/curated/text/15b21ec658e044c0b2708b4bfc97adfa69bb3ab539665eba8ba9f966495369a6.txt

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+Cl,apter 6: Ratio Call Writing 
+TABLE 6-3. 
+Initial investment required for a ratio write. 
+70% of stock cost (XYZ = 49) 
+Plus naked call premiums 
+Less total premiums received 
+Plus or minus striking price differential 
+on naked calls 
+$3,430 
++ 600 
+- 1,200 
+100 
+151 
+Total requirement $2,730 (plus commissions) 
+TABLE 6-4. 
+Collateral required with stock at upside break-even point of 63. 
+Covered writing requirement $1,850 (see Table 6-2) 
+20% of stock price (XYZ = 63) 1,260 
+Plus call premium 
+Less initial call premium received 
+Total requirement with XYZ at 63 
+1,400 
+600 
+$3,910 
+Therefore, he should allow for enough collateral to cover the eventuality of a move 
+to 63. Assuming the October 50 call is at 14 in this case, he would need $3,910 (see 
+Table 6-4). This is the requirement that the ratio writer should be concerned with, 
+not the initial collateral requirement, and he should therefore plan to invest $3,910 
+in this position, not $2,730 ( the initial requirement). Obviously, he only has to put up 
+$2,730, but from a strategic point of view, he should allow $3,910 for the position. If 
+the ratio writer does this with all his positions, he would not receive a margin call 
+even if all the stocks in his portfolio climbed to their upside break-even points. 
+SELECTION CRITERIA 
+To decide whether a ratio write is a desirable position, the writer must first determine 
+the break-even points of the position. Once the break-even points are known, the 
+writer can then decide if the position has a wide enough profit range to allow for 
+defensive action if it should become necessary. One simple way to determine if the 
+profit range is wide enough is to require that the next higher and lower striking prices 
+be within the profit range.