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+82 Part II: Call Option Strategies 
+has amassed a fairly large series of debits from previous rolls; or (2) he begins to sell 
+some out-of-the-money naked puts to bring in credits to reduce the cost of continu­
+ally rolling the calls up for debits. This latter action is even worse, because the entire 
+position is now leveraged tremendously, and a sharp drop in the stock price may 
+cause horrendous losses - perhaps enough to wipe out the entire account. As fate 
+would have it, these mistakes are usually made when the stock is near a top in price. 
+Any price decline after such a dramatic rise is usually a sharp and painful one. 
+The best way to avoid this type of potentially serious mistake is to allow the 
+stock to be called away at some point. Then, using the funds that are released, either 
+establish a new position in another stock or perhaps even utilize another strategy for 
+a while. If that is not feasible, at least avoid making a radical change in strategy after 
+the stock has had a particularly strong rise. Leveraging the position through naked 
+put sales on top of rolling the calls up for debits should expressly be avoided. 
+The discussion to this point has been directed at rolling up before expiration. At 
+or near expiration, when the time value premium has disappeared from the written 
+call, one may have no choice but to write the next-higher striking price if he wants to 
+retain his stock. This is discussed when we analyze action to take at or near expiration. 
+If the underlying stock rises, one's choices are not necessarily limited to rolling 
+up or doing nothing. As the stock increases in price, the written call will lose its time 
+premium and may begin to trade near parity. The writer may decide to close the posi­
+tion himself - perhaps well in advance of expiration - by buying back the written call 
+and selling the stock out, hopefully near parity. 
+Example: A customer originally bought XYZ at 25 and sold the 6-month July 25 for 
+3 points - a net of 22. Now, three months later, XYZ has risen to 33 and the call is 
+trading at 8 (parity) because it is so deeply in-the-money. At this point, the writer may 
+want to sell the stock at 33 and buy back the call at 8, thereby realizing an effective 
+net of 25 for the covered write, which is his maximum profit potential. This is cer­
+tainly preferable to remaining in the position for three more months with no more 
+profit potential available. The advantage of closing a parity covered write early is that 
+one is realizing the maximum return in a shorter period than anticipated. He is there­
+by increasing his annualized return on the position. Although it is generally to the 
+cash writer's advantage (margin writers read on) to take such action, there are a few 
+additional costs involved that he would not experience if he held the position until 
+the call expired. First, the commission for the option purchase (buy-back) is an addi­
+tional expense. Second, he will be selling his stock at a higher price than the striking 
+price, so he may pay a slightly higher commission on that trade as well. If there is a 
+dividend left until expiration, he will not be receiving that dividend if he closes the