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+244  •   The Intelligent Option Investor
+Clearly, the range of exposure for the $55-strike call is well above the 
+BSM cone. The BSM cone is pointing downward because the dividend rate 
+is 5 percent—higher than the risk-free rate. This means that BSM drift will 
+be lower. In addition, because this is an old, mature, steady-eddy kind of 
+company, the expected forward volatility is low. Basically, this is a perfect 
+storm for a low option price.
+My suggestion is to either write calls on stocks you don’t mind de-
+livering to someone else—stocks for which you are very confident in the 
+valuation range and are now at or above the upper bound—or simply to 
+look for a portfolio of short-put/covered-call investments and treat it like 
+a high-yield bond portfolio, as I described in Chapter 10 when explaining 
+short puts. It goes without saying that if you think that a stock has a lot of 
+unappreciated upside potential, it’s not a good idea to sell that exposure 
+away!
+One other note about execution: as I have said, short puts and cov-
+ered calls are the same thing, but a good many investors do not realize this 
+fact or their brokerages prevent them from placing any trade other than a 
+covered call. This leads to a situation in which there is a tremendous sup-
+ply of calls. Any time there is a lot of supply, the price goes down, and you 
+will indeed find covered calls on some companies paying a lot less than 
+the equivalent short put. Because you will be accepting the same downside 
+exposure, it is better to get paid more for it, so my advice is to write the put 
+rather than the covered call in such situations.
+To calculate returns for covered calls, I carry out the following steps:
+1. Assume that you buy the underlying stock at the market price.
+2. Deduct the money you will receive from the call sale as well as 
+any projected dividends—these are the two elements of your cash 
+inflow—from the market price of the stock. The resulting figure is 
+your effective buy price (EBP).
+3. Divide your total cash inflow by the EBP .
+I always include the projected dividend payment as long as I am writ-
+ing a short-tenor covered call and there are no issues with the company 
+that would prevent it from paying the dividend. Owners of record have a 
+right to receive dividends, even after they have written a covered call on the