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training_data/curated/text/d3f7c000d8e4bbc16e30885416f54120e07b6d87013a4de11ac4f9a3a2400b17.txt

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+C1,,,pter 2: Covered Call Writing 
+TABLE 2-26. 
+Two months of incremental return strategy. 
+Day 1 : XYZ = 60 
+Sell 3 XYZ October 60's at 7 
+One month later: XYZ = 70 
+Buy back the 3 XYZ Oct 60's at 11 and 
+sell 5 XYZ Oct 70's at 7 
+Two months later: XYZ = 80 
+Buy back the 5 Oct 70's at 11 and 
+sell 10 XYZ Oct 80's at 6 
+COVERED CALL WRITING SUMMARY 
+93 
++$2, 100 credit 
+-$3,300 debit 
++$3,500 credit 
+-$5 ,500 debit 
++$6.000 credit 
++$2,800 credit 
+This concludes the chapter on covered call writing. The strategy will be referred to 
+later, when compared with other strategies. Here is a brief summary of the more 
+important points that were discussed. 
+Covered call writing is a viable strategy because it reduces the risk of stock own­
+ership and will make one's portfolio less volatile to short-term market movements. It 
+should be understood, however, that covered call writing may underperform stock 
+ownership in general because of the fact that stocks can rise great distances, while a 
+covered write has limited upside profit potential. The choice of which call to write 
+can make for a more aggressive or more conservative write. Writing in-the-money 
+calls is strategically more conservative than writing out-of-the-money calls, because 
+of the larger amount of downside protection received. The total return concept of 
+covered call writing attempts to achieve the maximum balance between income from 
+all sources - option premiums, stock ownership, and dividend income - and down­
+side protection. This balance is usually realized by writing calls when the stock is near 
+the striking price, either slightly in- or slightly out-of-the-money. 
+The writer should compute various returns before entering into the position: 
+the return if exercised, the return if the stock is unchanged at expiration, and the 
+break-even point. To truly compare various writes, returns should be annualized, and 
+all commissions and dividends should be included in the calculations. Returns will be 
+increased by taking larger positions in the underlying stock - 500 or 1,000 shares. 
+Also, by utilizing a brokerage firm's capability to produce "net" executions, buying the 
+stock and selling the call at a specified net price differential, one will receive better 
+executions and realize higher returns in the long run.