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+Gapter 5: Naked Call Writing 137 
+stock is trading at 50 and one sells an April 60 call naked, figuring that he will cover 
+the call if the stock rises to 60 ( that is, if the option becomes an in-the-money option). 
+He should set aside enough collateral to margin the position as if the stock were at 
+60 (even though the actual margin requirement will be smaller than that). If he 
+allows that extra collateral, then he will never be forced into a margin call at a stock 
+price prior to (that is, below) where he wanted to take follow-up action. Simply stat­
+ed, let the market take you out of a position, not a margin call. 
+THE PHILOSOPHY OF SELLING NAKED OPTIONS 
+The first and foremost question one must address when thinking about selling naked 
+options (or any strategy, for that matter) is: "Can I psychologically handle the thought 
+of naked options in my account?" Notice that the question does not have anything to 
+do with whether one has enough collateral or margin to sell calls (although that, too, 
+is important) nor does it ask how much money he will make. First, one must decide 
+if he can be comfortable with the risk of the strategy. Selling naked options means 
+that there is theoretically unlimited risk if the underlying instrument should make a 
+large, sudden, adverse move. It is one's attitude regarding that fact alone that deter­
+mines whether he should consider selling naked options. If one feels that he won't be 
+able to sleep at night, then he should not sell naked options, regardless of any profit 
+projections that might seem attractive. 
+If one feels that the psychological suitability aspect is not a roadblock, then he 
+can consider whether he has the financial wherewithal to write naked options. On the 
+surface, naked option margin requirements are not large (although in equity and 
+index options, they are larger than they were prior to the crash of 1987). 
+In general, one would prefer to let the naked options expire worthless, if at all 
+possible, without disturbing them, unless the underlying instrument makes a signifi­
+cant adverse move. So, out-of-the-money options are the usual choice for naked sell­
+ing. Then, in order to reduce ( or almost eliminate) the chance of a margin call, one 
+should set aside the margin requirement as if the underlying had already rrwved to 
+the strike price of the option sold. By allowing margin as if the underlying were 
+already at the strike, one will almost never experience a margin call before the under­
+lying price trades up to the strike price, at which time it is best to close the position 
+or to roll the call to another strike. 
+Thus, for naked equity call options, allow as collateral 20% of the highest naked 
+strike price. In this author's opinion, the biggest mistake a trader can make is to ini­
+tiate trades because of margin or taxes. Thus, by allowing the "maximum" margin, 
+one can make trading decisions based on what's happening in the market, as opposed 
+to reacting to a margin call from his broker.