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+Chapter 2: Covered Call Writing 67 
+The writer wishing to establish a covered write against XYZ common stock may like 
+the protection afforded by the April 40 call, but may not find the return particularly 
+attractive. He may be able to improve his return by writing April 45's against part of 
+his position. Assume the writer is considering buying 1,000 shares of XYZ. Table 2-18 
+compares the attributes of writing the out-of-the-money (April 45) only, or of writing 
+only the in-the-money (April 40), or of writing 5 of each. The table is based on a cash 
+covered write, but returns and protection would be similar for a margin write. 
+Commissions are included in the figures. 
+It is easily seen that the "combined" write - half of the position against the April 
+40's and the other half against the April 45's - offers the best balance of return and 
+protection. The in-the-money call, by itself, provides over 10% downside protection, 
+but the 5% return if exercised is less than 1 % per month. Thus, one might not want 
+to write April 40's against his entire position, because the potential return is small. At 
+the same time, the April 45's, if written against the entire stock position, would pro­
+vide for an attractive return if exercised (over 2% per month) but offer only 5% down­
+side protection. The combined write, which has the better features of both options, 
+offers over 8% return if exercised (11h% per month) and affords over 8% downside 
+protection. By writing both calls, the writer has potentially solved the problems inher­
+ent in writing entirely out-of-the-moneys or entirely in-the-moneys. The "combined" 
+write frees the covered writer from having to initially take a bearish (in-the-money 
+write) or bullish (out-of-the-money write) posture on the stock ifhe does not want to. 
+This is often necessary on a low-volatility stock trading between striking prices. 
+TABLE 2-18. 
+Attributes of various writes. 
+Buy 1,000 XYZ and sell 
+Return if exercised 
+Re~rn if unchanged 
+Percent protection 
+In-the-Money 
+Write 
+10 April 40's 
+5.1% 
+5.1% 
+10.5% 
+Out-of-the-Money 
+Write 
+l O April 45's 
+12.2% 
+6.0% 
+5.7% 
+Write 
+Both Calls 
+5 April 40's and 
+5 April 45's 
+8.4% 
+5.4% 
+8.1% 
+For those who prefer a graphic representation, the profit graph shown in Figure 
+2-2 compares the combined write of both calls with either the in-the-money write or 
+the out-of-the-money write (dashed lines). It can be observed that all three choices 
+are equal if XYZ is near 42 at expiration; all three lines intersect there.