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training_data/relevant/text/ae3591a9942736f94746d6191e5b5df1228c8bcb6b0bfacbb9bcd2c8433e5944.txt

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+92 Part II: Call Option Strategies 
+The basic strategy involves, as an initial step, selecting the target price at which 
+the writer is willing to sell his stock 
+Example: A customer owns 1,000 shares ofXYZ, which is currently at 60, and is will­
+ing to sell the stock at 80. In the meantime, he would like to realize a positive cash 
+flow from writing options against his stock This positive cash flow does not neces­
+sarily result in a realized option gain until the stock is called away. Most likely, with 
+the stock at 60, there would not be options available with a striking price of 80, so one 
+could not write 10 July 80's, for example. This would not be an optimum strategy 
+even if the July 80's existed, for the investor would be receiving so little in option pre­
+miums - perhaps 10 cents per call - that writing might not be worthwhile. The incre­
+mental return strategy allows this investor to achieve his objectives regardless of the 
+existence of options with a higher striking price. 
+The foundation of the incremental return strategy is to write against only a part 
+of the entire stock holding initially, and to write these calls at the striking price near­
+est the current stock price. Then, should the stock move up to the next higher strik­
+ing price, one rolls up for a credit by adding to the number of calls written. Rolling 
+for a credit is mandatory and is the key to the strategy. Eventually, the stock reaches 
+the target price and the stock is called away, the investor sells all his stock at the tar­
+get price, and in addition earns the total credits from all the option transactions. 
+Example: XYZ is 60, the investor owns 1,000 shares, and his target price is 80. One 
+might begin by selling three of the longest-term calls at 60 for 7 points apiece. Table 
+2-26 shows how a poor case - one in which the stock climbs directly to the target 
+price - might work. As Table 2-26 shows, if XYZ rose to 70 in one month, the three 
+original calls would be bought back and enough calls at 70 would be sold to produce 
+a credit - 5 XYZ October 70's. If the stock continued upward to 80 in another month, 
+the 5 calls would be bought back and the entire position - 10 calls - would be writ­
+ten against the target price. 
+IfXYZ remains above 80, the stock will be called away and all 1,000 shares will 
+be sold at the target price of 80. In addition, the investor will earn all the option cred­
+its generated along the way. These amount to $2,800. Thus, the writer obtained the 
+full appreciation of his stock to the target price plus an incremental, positive return 
+from option writing. 
+In a flat market, the strategy is relatively easy to monitor. If a written call loses 
+its time value premium and therefore might be subject to assignment, the writer can 
+roll f01ward to a more distant expiration series, keeping the quantity of written calls 
+constant. This transaction would generate additional credits as well.