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training_data/curated/text/8e6deb617ca2a1b922fd566e073587c37fe9b3ca1bbb60ec253dd64d5a3a888b.txt

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+' 64 Part II: Call Option Strategies 
+month, the level nominally used for acceptable covered writes. Thus, the investor 
+who already owns stock may inadvertently be overlooking a potentially attractive cov­
+ered write because he has not computed the returns excluding the stock purchase 
+commission on his current stock holding. 
+It could conceivably be an even more extreme oversight for the investor to 
+switch from XYZ to AAA for writing purposes. The investor may consider making this 
+switch because he thinks that he could substantially increase his return, from 6.3% to 
+9.9% for the 6-month period, as shown in Table 2-17 comparing the two writes. 
+However, the returns are not truly comparable because the investor already 
+owns XYZ. To make the switch, he would first have to spend $345 in stock commis­
+sions to sell his XYZ, thereby reducing his profits on AAA by $345. Referring again to 
+the preceding detailed breakdown of the return if exercised, the profit on AAA would 
+then decline to $1,874 on the investment of $22,436, a return if exercised (cash) of 
+8.4%. On margin, the comparable return from switching stocks would drop to 14.8%. 
+The real comparison in returns from writing against these two stocks should be 
+made in the following manner. The return from writing against XYZ that is already 
+held should be compared with the return from writing against AAA after switching 
+fromXYZ: 
+Return if exercised - cash 
+Return if exercised - margin 
+XYZ Already Held 
+7.9% 
+11.3% 
+Switch from XYZ to AAA 
+8.4% 
+14.8% 
+Each investor must decide for himself whether it is worth this much smaller 
+increase in return to switch to a more volatile stock that pays a smaller dividend. He 
+can, of course, only make this decision by making the true comparison shown imme­
+diately above as opposed to the first comparison, which assumed that both stocks had 
+to be purchased in order to establish the covered write. 
+The same logic applies in situations in which an investor has been doing cov­
+ered writing. If he owns stock on which an option has expired, he will have to decide 
+whether to write against the same stock again or to sell the stock and buy a new stock 
+for covered writing purposes. Generally, the investor should write against the stock 
+already held. This justifies the method of computation of return if unchanged for out­
+of-the-money writes and also the computation of downside break-even points in 
+which a stock sale commission was not charged. That is, the writer would not nor­
+mally sell his stock after an option has expired worthless, but would instead write 
+another option against the same stock. It is thus acceptable to make these computa­
+tions without including a stock sales commission.