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+46 Part II: Call Option Strategies 
+philosophy is more like being a stockholder and trading options against one's stock 
+position than actually operating a covered writing strategy. In fact, some covered 
+writers will attempt to buy back written options for quick profits if such profits mate­
+rialize during the life of the covered write. This, too, is a stock ownership philosophy, 
+not a covered writing strategy. The total return concept represents the true strategy 
+in covered writing, whereby one views the entire position as a single entity and is not 
+predominantly concerned with the results of his stock ownership. 
+THE CONSERVATIVE COVERED WRITE 
+Covered writing is generally accepted to be a conservative strategy. This is because 
+the covered writer always has less risk than a stockholder, provided that he holds the 
+covered write until expiration of the written call. If the underlying stock declines, the 
+covered writer will always offset part of his loss by the amount of the option premi­
+um received, no matter how small. 
+As was demonstrated in previous sections, however, some covered writes are 
+clearly more conservative than others. Not all option writers agree on what is meant 
+by a conservative covered write. Some believe that it involves writing an option 
+(probably out-of-the-money) on a conservative stock, generally one with high yield 
+and low volatility. It is true that the stock itself in such a position is conservative, but 
+the position is more aptly termed a covered write on a conservative stock. This is dis­
+tinctly different from a conservative covered write. 
+A true conservative covered write is one in which the total position is conserva­
+tive - offering reduced risk and a good probability of making a profit. An in-the-money 
+wiite, even on a stock that itself is not conservative, can become a conservative total 
+position when the option itself is properly chosen. Clearly, an investor cannot write 
+calls that are too deeply in-the-money. If he did, he would get large amounts of down­
+side protection, but his returns would be severely limited. If all that one desired was 
+maximum protection of his money at a nominal rate of profit, he could leave the 
+money in a bank. Instead, the conservative covered writer strives to make a potential­
+ly acceptable return while still receiving an above-average amount of protection. 
+Example: Again assume XYZ common stock is selling at 45 and an XYZ July 40 call 
+is selling at 8. A covered write of the XYZ July 40 would require, in a cash account, 
+an investment of $3,700 - $4,500 to purchase 100 shares of XYZ, less the $800 
+received in option premiums. The write has a maximum profit potential of $300. The 
+potential return from this position is therefore $300/$3, 700, just over 8% for the peri­
+od during which the write must be held. Since it is most likely that the option has 9 
+months of life or less, this return would be well in excess of 10% on a per annum