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+Cl,opter 2: Covered Call Writing 87 
+to be accepted or the break-even point will be raised significantly by rolling forward, 
+one must consider the alternative of letting the stock be called away. 
+Example: A covered write is established by buying XYZ at 49 and selling an April 50 
+call for 3 points. The original break-even point was thus 46. Near expiration, suppose 
+XYZ has risen to 56 and the April 50 is trading at 6. If the investor wants to roll for­
+ward, now is the time to do so, because the call is at parity. However, he notes that 
+the choices are somewhat limited. Suppose the following prices exist with XYZ at 56: 
+XYZ October 50 call, 7; and XYZ October 60 call, 2. It seems apparent that the pre­
+mium levels have declined since the original writing position was established, but 
+that is an occurrence beyond the control of the writer, who must work in the current 
+market environment. 
+If the writer attempts to roll forward to the October 50, he could make at most 
+1 additional point of profit until October (the time premium in the call). This repre­
+sents an extremely low rate of return, and the writer should reject this alternative 
+since there are surely better returns available in covered writes on other securities. 
+On the other hand, if the writer tries to roll up and forward, it will cost 4 points 
+to do so - 6 points to buy back the April 50 less 2 points received for the October 60. 
+This debit transaction means that his break-even point would move up from the orig­
+inal level of 46 to a new level of 50. If the common declines below 54, he would be 
+eating into profits already at hand, since the October 60 provides only 2 points of pro­
+tection from the current stock price of 56. If the writer is not confidently bullish on 
+the outlook for XYZ, he should not roll up and forward. 
+At this point, the writer has exhausted his alternatives for rolling. His remaining 
+choice is to let the stock be called away and to use the proceeds to establish a cov­
+ered write in a new stock, one that offers a more attractive rate of return with rea­
+sonable downside protection. This choice of allowing the stock to be called away is 
+generally the wisest strategy if both of the following criteria are met: 
+1. Rolling forward offers only a minimal return. 
+2. Rolling up and forward significantly raises the break-even point and leaves the 
+position relatively unprotected should the stock drop in price. 
+SPECIAL WRITING SITUATIONS 
+Our discussions have pertained directly to writing against common stock. However, 
+one may also write covered call options against convertible securities, warrants, or 
+LEAPS. In addition, a different type of covered writing strategy - the incremental