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+56 Part II: Call Option Strategies 
+It may seem insignificant that one has to pay an extra few cents for the stock or pos­
+sibly receives a dime or 20 cents less for the call, but even a relatively small fraction 
+can alter the potential returns by a surprising amount. This is especially true for in­
+the-money writes, although any write will be affected. Let us use the previous 500-
+share covered writing example, again including all costs. 
+As before, the results are more dramatic for the margin write than for the cash 
+write. In neither case does the break-even point change by much. However, the 
+potential returns are altered significantly. Notice that if one pays an extra dime for 
+the stock and receives a dime less for the call - the far right-hand column in Table 
+2-16 - he may greatly negate the effect of writing against a larger number of shares. 
+From Table 2-16, one can see that writing against 300 shares at those prices (43 for 
+the stock and 3 for the call) is approximately the same return as writing against 500 
+shares if the stock costs 431/s and the option brings in 27/s. 
+Table 2-16 should clearly demonstrate that entering a covered writing order at 
+the market may not be a prudent thing to do, especially if one's calculations for the 
+potential returns are based on last sales or on closing prices in the newspaper. In the 
+next section, we discuss in depth the proper procedure for entering a covered writ­
+ing order. 
+TABLE 2-16. 
+Effect of stock and option prices on writing returns. 
+Buy Stock at 43 Buy Stock at 43.10 
+Sell Call at 3 Sell Call at 3 
+Return if exercised 11.2% cash 10.9% cash 
+18.4% margin 17.7% margin 
+Return if unchanged 7.9% cash 7.6% cash 
+11 .4% margin 10.7% margin 
+Break-even point 39.8 cash 39.9 cash 
+40.9 margin 41.0 margin 
+EXECUTION OF THE COVERED WRITE ORDER 
+Buy Stock at 43. I 0 
+Sell Call at 2.90 
+10.6% cash 
+16. 9% margin 
+7.3% cash 
+9.9% margin 
+40.0 cash 
+41.1 margin 
+When establishing a covered writing position, the question often arises: Which 
+should be done first - buy the stock or sell the option? The correct answer is that nei­
+ther should be done first! In fact, a simultaneous transaction of buying the stock and 
+selling the option is the only way of assuring that both sides of the covered write are 
+established at desired price levels.