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+Chapter 2: Covered Call Writing 43 
+PHYSICAL LOCATION Of THE STOCK 
+Before getting more involved in the details of covered writing strategy, it may be use­
+ful to review exactly what stock holdings may be written against. Recall that this dis­
+cussion applies to listed options. If one has deposited stock with his broker in either 
+a cash or a margin account, he may write an option for each 100 shares that he owns 
+without any additional requirement. However, it is possible to write covered options 
+without actually depositing stock with a brokerage firm. There are several ways in 
+which to do this, all involving the deposit of stock with a bank. 
+Once the stock is deposited with the bank, the investor may have the bank issue 
+an escrow receipt or letter of guarantee to the brokerage firm at which the investor 
+does his option business. The bank must be an "approved" bank in order for the bro­
+kerage firm to accept a letter of guarantee, and not all firms accept letters of guaran­
+tee. These items cost money, and as a new receipt or letter is required for each new 
+option written, the costs may become prohibitive to the customer if only 100 or 200 
+shares of stock are involved. The cost of an escrow receipt can range from as low as 
+$15 to upward of $40, depending on the bank involved. 
+There is another alternative open to the customer who wishes to write options 
+without depositing his stock at the brokerage firin. He may deposit his stock with a 
+bank that is a member of the Depository Trust Corporation (DTC). The DTC guar­
+antees the Options Clearing Corporation that it will, in fact, deliver stock should an 
+assignment notice be given to the call writer. This is the most convenient method for 
+the investor to use, and is the one used by most of the institutional covered writing 
+investors. There is usually no additional charge for this service by the bank to insti­
+tutional accounts. However, since only a limited number of banks are members of 
+DTC, and these banks are generally the larger banks located in metropolitan centers, 
+it may be somewhat difficult for many individual investors to take advantage of the 
+DTC opportunity. 
+TYPES Of COVERED WRITES 
+While all covered writes involve selling a call against stock that is owned, different 
+terms are used to describe various categories of covered writing. The two broadest 
+terms, under which all covered writes can be classified, are the out-of the-rrwney cov­
+ered write and the in-the-rrwney covered write. These refer, obviously, to whether the 
+option itself was in-the-money or out-of-the-money when the write was first estab­
+lished. Sometimes one may see covered writes classified by the nature of the stock 
+involved (low-priced covered write, high-yield covered write, etc;), but these are only 
+subcases of the two broad categories.