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+Cbapter 2: Covered Ca# Writing 
+Example: The following prices exist at January expiration: 
+XYZ, 50; 
+XYZ January 45 call, 5; and 
+XYZ July 50 call, 7. 
+85 
+In this case, if one had originally written the January 45 call, he could now roll up to 
+the July 50 at expiration for a credit of 2 points. This action is quite prudent, since 
+the break-even point and the maximum profit potential are enhanced. The break­
+even point is lowered by the 2 points of credit received from rolling up. The maxi­
+mum profit potential is increased substantially - by 7 points - since the striking price 
+is raised by 5 points and an additional 2 points of credit are taken in from the roll up. 
+Consequently, whenever one can roll up for a credit, a situation that would normally 
+arise only on more volatile stocks, he should do so. 
+Another choice that may occur at or near expiration is that of rolling down. The 
+case may arise whereby one has allowed a written call to expire worthless with the 
+stock more than a small distance below the striking price. The writer is then faced 
+with the decision of either writing a small-premium out-of-the-money call or a larg­
+er-premium in-the-money call. Again, an example may prove to be useful. 
+Example: Just after the January 25 call has expired worthless, 
+XYZ is at 22, 
+XYZ July 25 call at ¾, and 
+XYZ July 20 call at 3½. 
+If the investor were now to write the July 25 call, he would be receiving only¾ of a 
+point of downside protection. However, his maximum profit potential would be quite 
+large if XYZ could rally to 25 by expiration. On the other hand, the July 20 at 3½ is 
+an attractive write that affords substantial downside protection, and its 1 ½ points of 
+time value premium are twice that offered by the July 25 call. In a purely analytic 
+sense, one should not base his decision on what his performance has been to date, 
+but that is a difficult axiom to apply in practice. If this investor owns XYZ at a high­
+er price, he will almost surely opt for the July 25 call. If, however, he owns XYZ at 
+approximately the same price, he will have no qualms about writing the July 20 call. 
+There is no absolute rule that can be applied to all such situations, but one is usual­
+ly better off writing the call that provides the best balance between return and down­
+side protection at all times. Only if one is bullish on the underlying stock should he 
+write the July 25 call.