166 Part II: Call Option Strategies 
option investment, the writer who operates in large size will experience less of a 
commission charge, percentagewise. That is, the writer who is buying 500 shares 
of stock and selling 10 calls to start with will be able to place his stop points far­
ther out than the writer who is buying 100 shares of stock and selling 2 calls. 
Technical analysis can be helpful in selecting the stop points as well. If there is 
resistance overhead, the buy stop should be placed above that resistance. Similarly, if 
there is support, the sell stop should be placed beneath the support point. Later, 
when straddles are discussed, it will be seen that this type of strategy can be operat­
ed at less of a net commission charge, since the purchase and sale of stock will not be 
involved. 
CLOSING OUT THE WRITE 
The methods of follow-up action discussed above deal ,vith the eventuality of pre­
venting losses. However, if all goes well, the ratio write will begin to accrue profits as 
the stock remains relatively close to the original striking price. To retain these paper 
profits that have accrued, it is necessary to move the protective action points closer 
together. 
Example: XYZ is at 51 after some time has passed, and the calls are at 3 points each. 
The writer would, at this time, have an unrealized profit of $800 - $200 from the 
stock purchase at 49, and $300 each on the two calls, which were originally sold at 6 
points each. Recall that the maximum potential profit from the position, ifXYZ were 
exactly at 50 at expiration, is $1,300. The writer would like to adjust the protective 
points so that nearly all of the $800 paper profit might be retained while still allow­
ing for the profit to grow to the $1,300 maximum. 
At expiration, $800 profit would be realized ifXYZ were at 45 or at 55. This can 
be verified by referring again to Table 6-1 and Figure 6-1. The 45 to 55 range is now 
the area that the writer must be concerned with. The original profit range of 39 to 61 
has become meaningless, since the position has performed well to this point in time. 
If the writer is using the rolling method of protection, he would roll forward to the 
next expiration series if the stock were to reach 45 or 55. If he is using the stop-out 
method of protection, he could either close the position at 45 or 55 or he could roll 
to the next expiration series and readjust his stop points. The neutral strategist using 
deltas would determine the number of calls to roll forward to by using the delta of 
the longer-term call. 
By moving the protective action points closer together, the ratio writer can then 
adjust his position while he still has a profit; he is attempting to "lock in" his profit. 
As even more time passes and expiration draws nearer, it may be possible to move