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were assigned, the trader could then be simultaneously long the PERCS and short 
common stock, with a long January 40 call in addition. He would have to unwind 
pieces separately, an action that might include exercising the January 40 call (if 
It were in-the-money at expiration) to cover the short common stock. 
The conclusion that can be drawn is that in order to roll down the redemption 
fiature of a PERCS, one must sell a vertical call spread. In a similar manner, if he 
wanted to roll the strike up, he would buy a vertical call spread. Using the same 
example, one would still buy the January 40 call ( this effectively removes the redemp­
tion feature of the PERCS) and would then sell a January 45 call in order to raise the 
redemption price. Thus, buying a vertical call spread raises the effective redemption 
price of a PERCS. 
There is nothing magic about this strategy. Covered writers use it all the time. 
It merely evolves from thinking of a PERCS as a covered write. 
SELLING A CALL AGAINST A LONG PERCS IS A RATIO WRITE 
It is obvious to the strategist that if one owns a PERCS and also sells a call against it, 
he does not have a covered write. The PERCS is already a covered write. What he 
has when he sells another call is a ratio write. His equivalent position is long the com­
mon and short two calls. 
There is nothing inherently wrong with this, as long as the PERCS holder 
understands that he has exposed himself to potentially large upside losses by selling 
the extra call. If the common stock were to rally heavily, the PERCS would stop ris­
ing when it reached its redemption price. However, the additional call that was sold 
would continue to rise in price, possibly inflicting large losses if no defensive action 
were taken. 
The same strategies that apply to ratio writing or straddle writing would have to 
be used by someone who owns a PERCS and sells a call against it. He could buy com­
mon stock if the position were in danger on the upside, or he could roll the call(s) up. 
A difference between ordinary ratio writing and selling a listed call option 
against a PERCS is that the imbedded call in the PERCS may be a very long-term 
call (up to three years). The listed call probably wouldn't be of that duration. So the 
ratio writer in this case has two different expiration dates for his options. This does 
not change the overall strategy, but it does mean that the imbedded long-term call 
will not diminish much in price due to thepssage of time, until the PERCS is near­
er maturity. 
Neutrality is normally an important consideration for a ratio writer. If one is 
long a PERCS and short a listed call, he is by definition a ratio writer, so he should