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+144 Part II: Call Option Strategies 
+security, the strategist should diversify several moderately sized positions throughout 
+a variety of underlying stocks. If he does this, he will probably never have to exceed 
+the position limit of contracts short in any one security. 
+Even with as many precautions as one might take, there is no guarantee that 
+one would have the collateral available to withstand a gain of 1000% or more, such 
+as is occasionally seen with high-flying tech stocks or new IPOs. One would probably 
+be best served, if he really wants to operate this strategy, to stick with stocks that are 
+well capitalized (some of the biggest in the industry), so that they are less suscepti­
+ble to such violent upside moves. Even then, though, there is no guarantee that one 
+will not run out of collateral in a sharply rising market, because it is impossible to esti­
+mate with complete certainty just how far any one stock might advance in a particu­
+lar period of time. 
+TIME VALUE PREMIUM IS A MISNOMER 
+Once again, the topic of time value premium is discussed, as it was in Chapter 3. 
+Many novice option traders think that if they sell an out-of-the-money option 
+(whether covered or naked), all they have to do is sit back and wait to collect the pre­
+mium as time wears it away. However, a lot of things can happen between the time 
+an option is sold and its expiration date. The stock can move a great deal, or implied 
+volatility can skyrocket. Both are bad for the option seller and both completely coun­
+teract any benefit that time decay might be imparting. The option seller must con­
+sider what might happen during the life of the option, and not simply view it as a 
+strategy to hold the option until expiration. Naked call writers, especially, should 
+operate with that thought in mind, but so should covered call writers, even though 
+most don't. What the covered writer gives away is the upside; and if he constantly 
+sells options without regard to the possibilities of volatility or stock price increases, 
+he will be doing himself a disservice. 
+So, while it is still proper to refer to the part of an option's price that is not 
+intrinsic value as "time value premium," the knowledgeable option trader under­
+stands that it is also more heavily influenced by volatility and stock price movement 
+than by time. 
+SUMMARY 
+In a majority of cases, naked call writing is applied as a deeply out-of-the-money 
+strategy in which the investor uses the collateral value of his security holdings to par­
+ticipate in a strategy that offers a large probability of making a very limited profit. It 
+is a poor strategy, because one loss may wipe out many profits. The trader who