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+A Complete Guide to the Futures mArket
+Strategy 13: Covered Call Write (Long Futures + Short Call)
+example. Buy August gold futures at $1,200/oz and simultaneously sell an August $1,200 gold 
+futures call at a premium of $38.80/oz ($3,880). (See Table 35.13 and Figure 35.13.)
+Comment. There has been a lot of nonsense written about covered call writing. In fact, even 
+the term is misleading. The implication is that covered call writing—the sale of calls against long  
+positions—is somehow a more conservative strategy than naked call writing—the sale of calls without 
+any offsetting long futures position. This assumption is absolutely false. Although naked call writing 
+implies unlimited risk, the same statement applies to covered call writing. As can be seen in Figure 
+35.13, the covered call writer merely exchanges unlimited risk in the event of a market advance (as is 
+the case for the naked call writer) for unlimited risk in the event of a market decline. In fact, the reader 
+can verify that this strategy is virtually equivalent to a “naked” short put position (see Strategy 35.6a).
+One frequently mentioned motivation for covered call writing is that it allows the holder of a long 
+position to realize a better sales price. For example, if the market is trading at $1,200 and the holder 
+of a long futures contract sells an at-the-money call at a premium of $38.80/oz instead of liquidating 
+his position, he can realize an effective sales price of $1,238.80 if prices move higher (the $1,200 
+strike price plus the premium received for the sale of the call). And, if prices move down by no more 
+than $38.80/oz by option expiration, he will realize an effective sales price of at least $1,200. Pre-
+sented in this light, this strategy appears to be a “heads you win, tails you win” proposition. However, 
+there is no free lunch. The catch is that if prices decline by more than $38.80, the trader will realize a 
+lower sales price than if he had simply liquidated the futures position. And, if prices rise substantially 
+higher, the trader will fail to participate fully in the move as he would have if he had maintained his 
+long position.
+The essential point is that although many motivations are suggested for covered call writing, the 
+trader should keep in mind that this strategy is entirely equivalent to selling puts.
+tabLe 35.13  profit/Loss Calculations: Covered Call Write—Long Futures + Short Call (Similar to  
+Short put)
+(1) (2) (3) (4) (5) (6)
+Futures price 
+at expiration 
+($/oz)
+premium of 
+august $1,200 Call 
+at Initiation ($/oz)
+$ amount of 
+premium received
+profit/Loss on Long 
+Futures position
+Call Value at 
+expiration
+profit/Loss on position 
+[(3) + (4) – (5)]
+1,000 38.8 $3,880 –$20,000 $0 –$16,120
+1,050 38.8 $3,880 –$15,000 $0 –$11,120
+1,100 38.8 $3,880 –$10,000 $0 –$6,120
+1,150 38.8 $3,880 –$5,000 $0 –$1,120
+1,200 38.8 $3,880 $0 $0 $3,880
+1,250 38.8 $3,880 $5,000 $5,000 $3,880
+1,300 38.8 $3,880 $10,000 $10,000 $3,880
+1,350 38.8 $3,880 $15,000 $15,000 $3,880
+1,400 38.8 $3,880 $20,000 $20,000 $3,880