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training_data/curated/text/dbdba7d522796bb06d39cf9feaa8fdde720d791f64300cef8536f066ea869d83.txt

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+were assigned, the trader could then be simultaneously long the PERCS and short 
+common stock, with a long January 40 call in addition. He would have to unwind 
+pieces separately, an action that might include exercising the January 40 call (if 
+It were in-the-money at expiration) to cover the short common stock. 
+The conclusion that can be drawn is that in order to roll down the redemption 
+fiature of a PERCS, one must sell a vertical call spread. In a similar manner, if he 
+wanted to roll the strike up, he would buy a vertical call spread. Using the same 
+example, one would still buy the January 40 call ( this effectively removes the redemp­
+tion feature of the PERCS) and would then sell a January 45 call in order to raise the 
+redemption price. Thus, buying a vertical call spread raises the effective redemption 
+price of a PERCS. 
+There is nothing magic about this strategy. Covered writers use it all the time. 
+It merely evolves from thinking of a PERCS as a covered write. 
+SELLING A CALL AGAINST A LONG PERCS IS A RATIO WRITE 
+It is obvious to the strategist that if one owns a PERCS and also sells a call against it, 
+he does not have a covered write. The PERCS is already a covered write. What he 
+has when he sells another call is a ratio write. His equivalent position is long the com­
+mon and short two calls. 
+There is nothing inherently wrong with this, as long as the PERCS holder 
+understands that he has exposed himself to potentially large upside losses by selling 
+the extra call. If the common stock were to rally heavily, the PERCS would stop ris­
+ing when it reached its redemption price. However, the additional call that was sold 
+would continue to rise in price, possibly inflicting large losses if no defensive action 
+were taken. 
+The same strategies that apply to ratio writing or straddle writing would have to 
+be used by someone who owns a PERCS and sells a call against it. He could buy com­
+mon stock if the position were in danger on the upside, or he could roll the call(s) up. 
+A difference between ordinary ratio writing and selling a listed call option 
+against a PERCS is that the imbedded call in the PERCS may be a very long-term 
+call (up to three years). The listed call probably wouldn't be of that duration. So the 
+ratio writer in this case has two different expiration dates for his options. This does 
+not change the overall strategy, but it does mean that the imbedded long-term call 
+will not diminish much in price due to thepssage of time, until the PERCS is near­
+er maturity. 
+Neutrality is normally an important consideration for a ratio writer. If one is 
+long a PERCS and short a listed call, he is by definition a ratio writer, so he should