615 
Note that the sale of these calls effectively puts a cap on the profit potential of 
investor's overall position until the December expiration of the listed calls. If $SPX 
were to rise substantially above 1,250, his profits would be "capped" because the two 
were sold. Thus, he has effectively taken his synthetic long call position and con­
verted it into a bull spread (or a collared index fund, if you prefer that description). 
In reality, any calls written against the structured product would have to be 
margined as naked calls. In a virtual sense, the 15,000 shares of the structured prod­
Ut't "cover" the sale of 2 $SPX calls, but margin rules don't allow for that distinction. 
In essence, the sale of two calls would create a bull spread. Alternatively, if one thinks 
uf the structured product as a long index fully protected by a put (which is another 
way to consider it), then the sale of the $SPX listed call produces a "collar." 
Of course, one could write more than two $SPX calls, if he had the required 
margin in his account. This would create the equivalent of a call ratio spread, and 
would have the properties of that strategy: greatest profit potential at the striking 
price of the written calls, limited downside profit potential, and theoretically unlim­
ited upside risk if $SPX should rise quickly and by a large amount. 
In any of these option writing strategies, one might want to write out-of-the­
money, short-term calls against his structured product periodically or continuously. 
Such a strategy would produce good results if the underlying index does not advance 
quickly while the written calls are in place. However, if the index should rise through 
the striking price of the written calls, such a strategy would detract from the overall 
return of the structured product. 
Changing the Striking Price. Another strategy that the investor could use 
if he so desired is to establish a vertical call spread in order to effectively change 
the striking price of the (imbedded) call. For example, if the market had advanced 
by a great deal since the product was bought, the imbedded call would theoreti­
cally have a nice profit. If one could sell it and buy another, similar call at a high­
er strike, he would effectively ~olling his call up. This would raise the striking 
price and would reduce downside risk greatly (at the cost of slightly reducing 
upside profit potential). 
Example: Using the same product as in the previous example, suppose that the 
investor who owns the structured product considers another alternative. In the pre­
vious example, he evaluated the possibility of selling a slightly out-of-the-money list­
ed call to effectively produce a collared position, or a bull spread. The problem with 
that is that it limits upside profit potential. If the market were to continue to rise, he 
would only participate up to the higher strike (plus the premium received).