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+164 Part II: Call Option Strategies 
+Example: An investor places a "good until canceled" stop order to buy 100 shares of 
+XYZ at 57 at the same time that he establishes the original position. If XYZ should 
+get to 57, the stop would be set off and he would then own 200 shares ofXYZ and be 
+short 2 calls. That is, he would have a 200-share covered write of XYZ October 50 
+calls. 
+To see how such an action affects his overall profit picture, note that his average 
+stock cost is now 53; he paid 49 for the first 100 shares and paid 57 for the second 100 
+shares bought via the stop order. Since he sold the calls at 6 each, he essentially has a 
+covered write in which he bought stock at 53 and sold calls for 6 points. This does not 
+represent a lot of profit potential, but it will ensure some profit unless the stock falls 
+back below the new break-even point. This new break-even point is 47 - the stock 
+cost, 53, less the 6 points received for the call. He will realize the maximum profit 
+potential from the covered write as long as the stock remains above 50 until expira­
+tion. Since the stock is already at 57, the probabilities are relatively strong that it will 
+remain above 50, and even stronger that it will remain above 47, until the expiration 
+date. If the buy stop order was placed just above a technical resistance area, this prob­
+ability is even better. 
+Hence, the use of a buy stop order on the upside allows the ratio writer to auto­
+matically convert the ratio write into a covered write if the stock moves up too far. 
+Once the stop goes off, he has a position that will make some profit as long as the 
+stock does not experience a fairly substantial price reversal. 
+Downside protective action using a sell stop order works in a similar manner. 
+Example: The investor placed a "good until canceled" sell stop for 100 shares of 
+stock after establishing the original position. If this sell stop were placed at 41, for 
+example, the position would become a naked call writer's position if the stock fell to 
+41. At that time, the 100 shares of stock that he owned would be sold, at an 8-point 
+loss, but he would have the capability of making 12 points from the sale of his two 
+calls as long as the stock remained below 50 until expiration. In fact, his break-even 
+point after converting into the naked write would actually be 52 at expiration, since 
+at that price, the calls could be bought back for 2 points each, or 8 points total prof­
+it, to offset the 8-point loss on the stock. This action limits his profit potential, but 
+will allow him to make some profit as long as the stock does not experience a strong 
+price reversal and climb back above 52 by expiration. 
+There are several advantages for inexperienced ratio writers to using this 
+method of protection. First, the implementation of the protective strategies - buying 
+an extra 100 shares of stock if the stock moves up, or selling out the 100 shares that 
+are long if the stock moves down - is unemotional if the stop orders are placed at the