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training_data/curated/text/ee1855fc3a3c57c01032a125dd54043f563b2c7913312d53be4bbf765dd9ae4a.txt

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+392 Part Ill: Put Option Strategies 
+at its expiration, and the stock is called away. The short-term writer would have col­
+lected two dividends of the common stock, while the LEAPS writer would have col­
+lected eight by expiration. 
+Stock sale (500 @ 50) 
+Less stock commission 
+Plus dividends earned 
+until expiration 
+Less net investment 
+Net profit if exercised 
+Return if exercised 
+(net profit/net investment) 
+Return If Exercised 
++ 
+July 50 call 
+$25,000 
+300 
+250 
+- 23,350 
+$ 1,600 
+6.9% 
+January 50 LEAPS 
+$25,000 
+300 
++ 1,000 
+- 21,150 
+$ 4,550 
+21.5% 
+The LEAPS writer has a much higher net return if exercised, again because he 
+wrote a more expensive option to begin with. However, in order to fairly compare the 
+two writes, one must annualize the returns. That is, the July 50 covered write made 
+6.9% in six months, so it could make twice that in one year, if it can be duplicated six 
+months from now. In a similar manner, the LEAPS covered writer can make 21.5% 
+in two years if the stock is called away. However, on an annualized basis, he would 
+make only half that amount. 
+Return If Exercised, Annualized 
+July 50 call January 50 LEAPS 
+13.8% 10.8% 
+Thus, on an annualized basis, the short-term write seems better. The shorter-term 
+call will generally have a higher rate of return, annualized, than the LEAPS call. The 
+problems with annualizing are discussed in the following text. 
+Finally, the downside break-even point can be computed for each write. 
+Downside Break-Even Calculation 
+Net investment 
+Less dividends received 
+Total stock cost to expiration 
+Divided by shares held (500), 
+equals break-even price: 
+July 50 call 
+$23,350 
+250 
+$23,100 
+46.2 
+January 50 LEAPS 
+$21,150 
+1 000 
+$20,150 
+40.3