Chapter 2: Covered Call Writing 77 
the writer would buy back only 5 of the January 20's and sell 5 January 15 calls. He 
would then have this position: 
long 1,000 XYZ at 20; 
short 5 XYZ January 20's at 2; 
short 5 XYZ January 15's at 2½; and 
realized gain, $750 from 5 January 20's. 
This strategy is generally referred to a partial roll-down, in which only a portion of 
the original calls is rolled, as opposed to the more conventional complete roll-down. 
Analyzing the partially rolled position makes it clear that the writer no longer locks 
in a loss. 
IfXYZ rallies back above 20, the writer would, at expiration, sell 500 XYZ at 20 
(breaking even) and 500 at 15 (losing $2,500 on this portion). He would make $1,000 
from the five January 20's held until expiration, plus $1,250 from the five January 15's, 
plus the $750 of realized gain from the January 20's that were rolled down. This 
amounts to $3,000 worth of option profits and $2,500 worth of stock losses, or an 
overall net gain of $500, less commissions. Thus, the partial roll-down offers the 
writer a chance to make some profit if the stock rebounds. Obviously, the partial roll­
down will not provide as much downside protection as the complete roll-down does, 
but it does give more protection than not rolling down at all. To see this, compare the 
results given in Table 2-23 if XYZ is at 15 at expiration. 
TABLE 2-23. 
Stock at 15 at expiration. 
Strategy 
Original position 
Partial roll-down 
Complete roll-down 
Stock Loss 
-$5,000 
- 5,000 
- 5,000 
Option 
Profit Total Loss 
+$2,000 -$3,000 
+ 3,000 - 2,000 
+ 4,000 - 1,000 
In summary, the covered writer who would like to roll down, but who does not 
want to lock in a loss or who feels the stock may rebound somewhat before expira­
tion, should consider rolling down only part of his position. If the stock should con­
tinue to drop, making it evident that there is little hope of a strong rebound back to 
the original strike, the rest of the position can then be rolled down as well.