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+154 Part II: Call Option Strategies 
+A more bullish write is constructed by buying 200 shares of the underlying stock 
+and writing three calls. To quickly verify that this ratio (3:2) is more bullish, again use 
+49 for the stock price and 6 for the call price, and now assume that two round lots 
+were purchased. 
+Maximum profit= (50-49) x 2 + 3 x 6 = 20 
+Downside break-even = 50 - 20/2 = 40 
+Upside break-even= 50 + 20/(3 - 2) = 70 
+Thus, this ratio of 3 calls against 200 shares of stock has break-even points of 40 and 
+70, reflecting a more bullish posture on the underlying stock. 
+A 2: 1 ratio may not necessarily be neutral. There is, in fact, a mathematically 
+correct way of determining exactly what a neutral ratio should be. The neutral ratio 
+is determined by dividing the delta of the written call into 1. Assume that the delta of 
+the XYZ October 50 call in the previous example is .60. Then the neutral ratio is 
+1.0/.60, or 5 to 3. This means that one might buy 300 shares and sell 5 calls. Using 
+the formulae above, the details of this position can be observed: 
+Maximum profit= (50 -49) x 3 + 5 x 6 = 33 
+Downside break-even = 50 - 33/3 = 39 
+Upside break-even = 50 + 33/(5 --3) = 66½ 
+According to the mathematics of the situation, then, this would be a neutral position 
+initially. It is often the case that a 5:3 ratio is approximately neutral for an at-the­
+money call. 
+By now, the reader should have recognized a similarity between the ratio writ­
+ing strategy and the reverse hedge (or simulated straddle) strategy presented in 
+Chapter 4. The two strategies are the reverse of each other; in fact, this is how the 
+reverse hedge strategy acquired its name. The ratio write has a profit graph that looks 
+like a roof, while the reverse hedge has a profit graph that looks like a trough - the 
+roof upside down. In one strategy the investor buys stock and sells calls, while the 
+other strategy is just the opposite - the investor shorts stock and buys calls. Which 
+one is better? The answer depends on whether the calls are "cheap" or "expensive." 
+Even though ratio writing has limited profits and potentially large losses, the strate­
+gy will result in a profit in a large majority of cases, if held to expiration. However, 
+one may be forced to make adjustments to stock moves that occur prior to expiration. 
+The reverse hedge strategy, with its limited losses and potentially large profits, pro­
+vides profits only on large stock moves - a less frequent event. Thus, in stable mar­
+kets, the ratio writing strategy is generally superior. However, in times of depressed 
+option premiums, the reverse hedge strategy gains a distinct advantage. If calls are