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training_data/curated/text/79d7b68752ec12fc036c11f4ed160e482c4de940ec145b6f85a7439bb67086f0.txt

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+628 Part V: Index Options and Futu, 
+If the action results in a lower strike, it is known as rolling down; if it results in a hi§ 
+er strike, it is rolling up. 
+This rolling action changes the profit potential of the position. If one rolls dov; 
+he gets more downside protection, but his upside is even more limited than it prei 
+ously was. Still, if he is worried about the stock falling lower, this may be a prop 
+action to take. Conversely, if the common is rallying, and the covered writer is mo 
+bullish on the stock, he can roll up in order to increase his upside profit potenti~( 
+course, by rolling up, he creates more downside risk if the common stock should sue 
+denly reverse direction and fall. 
+The PERCS holder can achieve the same results as the covered writer. He ca 
+effectively roll his redemption price down or up if he so chooses. His reasons fc 
+doing so would be substantially the same as the covered writer's. For example, if th 
+common were dropping in price, the PERCS holder might become worried that hi 
+extra dividend income would not be enough to protect him in the case of furthe 
+decline. Therefore, he would want to take in even more premium in exchange fo 
+allowing himself to be called away at a lower price. 
+Example: XYZ issued PERCS when both were trading at 35. Now, XYZ has fallen t< 
+30 with only a year remaining until maturity, and the PERCS holder is nervous abou 
+further declines. He could, of course, merely sell his stock; but suppose that ht: 
+prefers to keep it and attempt to modify his position to more accurately reflect hb 
+attitude about future price movements. 
+Assume the following prices exist: 
+XYZ Common: 30 
+XYZ PERCS: 31 
+XYZ January 40 call: 2 
+XYZ January 35 call: 4 
+Ifhe buys the January 40 call and sells the January 35 call, he will have accomplished 
+his purpose. This is the same as selling a call bear spread. As shown in the previous 
+example, buying the January 40 call is essentially the same as removing the redemp­
+tion feature from the PERCS. Then, selling the January 35 call will reinstate a 
+redemption feature at 35. Thus, the PERCS holder has taken in a premium of 2 
+points and has lowered the redemption price. 
+If XYZ is below 35 when the options expire, he will have an extra $200 profit 
+from the option trades. If XYZ rallies and is above 35 at expiration, he will be effec­
+tively called away at 37 (the striking price of 35 plus the two points from the rollr, 
+instead of at the original demand price of 39. In actual practice, if the January 35 call