68 Part II: Call Option Strategies 
FIGURE 2-2. 
Comparison: combined write vs. in-the-money write and out-of-the­
money write. 
Out-of-the-Money Write 
, 
.-------► ,,, Combined Write , 
/ In-the-Money Write 
-----------➔ 
Stock Price at Expiration 
Since this technique can be useful in providing diversification between protec­
tion and return, not only for an individual position but for a large part of a portfolio, 
it may be useful to see exactly how to compute the potential returns and break-even 
points. Tables 2-19 and 2-20 calculate the return if exercised and the return if 
unchanged using the prices from the previous example. Assume XYZ will pay $1 per 
share in dividends before April expiration. 
Note that the profit calculations are similar to those described in earlier sec­
tions, except that now there are two prices for stock sales since there are two options 
involved. In the "return if exercised" section, half of the stock is sold at 45 and half is 
sold at 40. The "return if unchanged" calculation is somewhat more complicated now, 
TABLE 2-19. 
Net investment-cash account. 
Buy 1,000 XYZ at 42 
Plus stock commissions 
Less options premiums: 
Sell 5 April 40's at 4 
Sell 5 April 45's at 2 
Plus total option commissions 
Net investment 
+ 
$42,000 
460 
- 2,000 
1,000 
+ 140 
$39,600