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training_data/curated/text/c8e40b7ee34049dcb7cc5f65f0354ba02396d0e47243438b912521578fe2694c.txt

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+Cltapter 17: Put Buying in Conjunction with Common Stock Ownership 
+TABLE 17-3. 
+Highest Call Strike That Pays for an At-the-Money Put 
+(Assuming 2.5 years to expiration) 
+Volatility Coll Strike 
+30% 
+40% 
+50% 
+70% 
+100% 
+of Underlying 
+30% out of money 
+35% out of money 
+40% out of money 
+50% out of money 
+70% out of money 
+279 
+same price as a three-year call struck at 200! That may seem illogical, but the figures 
+can be checked out with the aid of an option-pricing model. Thus, this company was 
+able to hedge all of its CSCO stock, with no downside risk ( the striking price of the 
+puts was the same as the current stock price) and still had profit potential of over 50% 
+to the upside over the next three years. 
+Thus, one should consider using LEAPS options when he establishes a collar -
+even ifhe is not an institutional trader - because the striking price of the calls can be 
+quite high in comparison to that of the put' s strike or in comparison to the price of 
+the underlying stock. Table 17-3 shows how far out-of-the-money a written call could 
+be that still covers the cost of buying an at-the-money put. The time to expiration in 
+this table is 2.5 years - the longest term listed option that currently exists as a LEAPS 
+option. 
+USING LOWER STRIKES AS A PARTIAL COVERED WRITE 
+It should also be pointed out that one does not necessarily have to forsake all of 
+the profit potential from his stock. He might buy the puts, as usual, and then sell calls 
+with a somewhat lower strike than needed for a low-cost collar, but the quantity of 
+calls sold would be less than that of stock owned. In that way, there would be unlim­
+ited profit potential on some of the shares of the underlying stock. 
+Example: Suppose that the following prices exist: 
+XYZ:61 
+Apr 55 put: 1 
+Apr 65 call: 2 
+Furthermore, suppose that one owns 1000 shares of XYZ. Thus, the purchase 
+of 10 Apr 55 puts at 1 point apiece would protect the downside. In order to cover the 
+cost of those puts ($1000), one need only sell five of the Apr 65 calls at 2 points