Chapter 17: Put Buying in Conjundion with Common Stock Ownership 
TABLE 17·2. 
Comparison of regular and protected covered writes. 
XYZ Price at Stock October 40 October 35 
Expiration Profit Call Profit Put Profit 
25 -$1,400 +$300 +$950 
30 900 + 300 + 450 
35 400 + 300 - 50 
36.50 250 + 300 - 50 
38 100 + 300 - 50 
40 + 100 + 300 - 50 
45 + 600 - 200 - 50 
50 + 1,100 - 700 - 50 
FIGURE 17-2. 
Covered call write protected by a put purchase. 
C 
0 
e ·5. 
X 
LU 
co $0 CJ) 
CJ) 
0 .J 
0 
~ -$150 a.. 
,, 
},.,,' 
; 
,, 
Regular 
Covered ,,' 
Write/ 
36 / , , 
;
,,' 
+$400 
,----------➔ ,,,' _____ ...,.. 
, +$350 
,,,' 
40 
Stock Price at Expiration 
277 
Total 
Profit 
-$150 
- 150 
- 150 
0 
+ 150 
+ 350 
+ 350 
+ 350 
The longer-term effects of buying puts in combination with covered writes are 
not easily definable, but it would appear that the writer reduces his overall rate of 
return slightly by buying the puts. This is because he gives something away if the 
stock falls slightly, remains unchanged, or rises in price. He only "gains" something if 
the stock falls heavily. Since the odds of a stock falling heavily are small in compari­
son to the other events (falling slightly, remaining unchanged, or rising), the writer 
will be gaining something in only a small percentage of cases. However, the put buy­
ing strategy may still prove useful in that it removes the emotional uncertainty of