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+Gapter 2: Covered Call Writing 41 
+do with it as he pleases. That income can represent a substantial increase in the 
+income currently provided by the dividends on the underlying stock, or it can act to 
+offset part of the loss in case the stock declines. 
+For readers who prefer formulae, the profit potential and break-even point of a 
+covered write can be summarized as follows: 
+Maximum profit potential = Strike price Stock price + Call price 
+Downside break-even point = Stock price - Call price 
+QUANTIFICATION OF THE COVERED WRITE 
+Table 2-1 and Figure 2-1 depict the profit graph for the example involving the XYZ 
+covered write of the July 50 call. The table makes the assumption that the call is 
+bought back at parity. If the stock is called away, the same total profit of $500 results; 
+but the price involved on the stock sale is always 50, and the option profit is always 
+$300. 
+Several conclusions can be drawn. The break-even point is 45 (zero total prof­
+it) with risk below 45; the maximum profit attainable is $500 if the position is held 
+until expiration; and the profit if the stock price is unchanged is $300, that is, the cov­
+ered writer makes $300 even if his stock goes absolutely nowhere. 
+The profit graph for a covered write always has the shape shown in Figure 2-1. 
+Note that the maximum profit always occurs at all stock prices equal to or greater 
+than the striking price, if the position is held until expiration. However, there is 
+downside risk. If the stock declines in price by too great an amount, the option pre­
+mium cannot possibly compensate for the entire loss. Downside protective strategies, 
+which are discussed later, attempt to deal with the limitation of this downside risk. 
+TABLE 2-1. 
+The XYZ July 50 call. 
+XYZ Price Stock July 50 Call Call Total 
+at Expiration Profit at Expiration Profit Profit 
+40 -$ 800 0 +$300 -$500 
+45 - 300 0 + 300 0 
+48 0 0 + 300 + 300 
+50 + 200 0 + 300 + 500 
+55 + 700 5 - 200 + 500 
+60 + 1,200 10 - 700 + 500