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+Chapter 6: Ratio Call Writing 149 
+covered writer has upside protection all the way to infinity; that is, he has no upside 
+risk at all. This cannot be the mathematically optimum situation, because stocks 
+never rise to infinity. Rather, the ratio writer is engaged in a strategy that makes its 
+profits in a price range more in line with the way stocks actually behave. In fact, if 
+one were to try to set up the optimum strategy, he would want it to make its most 
+profits in line with the most probable outcomes for a stock's movement. Ratio writ­
+ing is such a strategy. 
+Figure 6-2 shows a simple probability curve for a stock's movement. It is most 
+likely that a stock will remain relatively unchanged and there is very little chance that 
+it will rise or fall a great distance. Now compare the results of the ratio writing strat­
+egy with the graph of probable stock outcomes. Notice that the ratio write and the 
+probability curve have their "peaks" in the same area; that is, the ratio write makes 
+its profits in the range of most likely stock prices, because there is only a small chance 
+that any stock will increase or decrease by a large amount in a fixed period of time. 
+The large losses are at the edges of the graph, where the probability curve gets very 
+low, approaching zero probability. It should be noted that these graphs show the prof­
+it and probability at expiration. Prior to expiration, the break-even points are closer 
+to the original purchase price of the stock because there will still be some time value 
+premium remaining on the options that were sold. 
+FIGURE 6-2. 
+Stock price probability curve overlaid on profit graph of ratio 
+write. 
++$1,300 Probability 
+Curve 
+Stock Price