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+66 Part II: Call Option Strategies 
+debit rather than let their "untouchable" stock be called away, just before the stock 
+itself or the stock market collapsed. 
+One should be very cautious about writing covered calls against stocks that he 
+doesn't intend to sell. If one feels that he cannot sell his stock, for whatever reason -
+tax considerations, emotional ties, etc. - he really should not sell covered calls against 
+it. Perhaps buying a protective put ( discussed in a later chapter) would be a better 
+strategy for such a stockholder. 
+DIVERSIFYING RETURN AND PROTECTION 
+IN A COVERED WRITE 
+FUNDAMENTAL DIVERSIFICATION TECHNIQUES 
+Quite clearly, the covered writing strategist would like to have as much of a combina­
+tion of high potential returns and adequate downside protection as he can obtain. 
+Writing an out-of-the-money call will offer higher returns if exercised, but it usually 
+affords only a modest amount of downside protection. On the other hand, writing an 
+in-the-money call will provide more downside cushion but offers a lower return if 
+exercised. For some strategists, this diversification is realized in practice by writing 
+out-of-the-money calls on some stocks and in-the-moneys on other stocks. There is no 
+guarantee that writing in this manner on a list of diversified stocks will produce supe­
+rior results. One is still forced to pick the stocks that he expects will perform better 
+(for out-of-the-money writing), and that is difficult to do. Moreover, the individual 
+investor may not have enough funds available to diversify into many such situations. 
+There is, however, another alternative to obtaining diversification of both returns and 
+downside protection in a covered writing situation. 
+The writer may often do best by writing half of his position against in-the-rrwn­
+eys and half against out-of the-rrwneys on the same stock. This is especially attractive 
+for a stock whose out-of-the-money calls do not appear to provide enough downside 
+protection, and at the same time, whose in-the-money calls do not provide quite 
+enough return. By writing both options, the writer may be able to acquire the return 
+and protection diversification that he is seeking. 
+Example: The following prices exist for 6-month calls: 
+XYZ common stock, 42; 
+XYZ April 40 call, 4; and 
+XYZ April 45 call, 2.