150 Part II: Call Option Strategies 
INVESTMENT REQUIRED 
The ratio writer has a combination of covered writes and naked writes. The margin 
requirements for each of these strategies have been described previously, and the 
requirements for a ratio writing strategy are the sum of the requirements for a naked 
write and a covered write. Ratio writing is normally done in a margin account, 
although one could technically keep the stock in a cash account. 
Example: Ignoring commissions, the investment required can be computed as fol­
lows: Buy 100 XYZ at 49 on 50% margin and sell 2 XYZ October 50 calls at 6 points 
each (Table 6-2). The commissions for buying the stock and selling the calls would be 
added to these requirements. A shorter formula (Table 6-3) is actually more desirable 
to use. It is merely a combination of the investment requirements listed in Table 6-2. 
In addition to the basic requirement, there may be minimum equity require­
ments and maintenance requirements, since naked calls are involved. As these vary 
from one brokerage firm to another, it is best for the ratio writer to check with his 
broker to determine the equity and maintenance requirements. Again, since naked 
calls are involved in ratio writing, there will be a mark to market of the position. If 
the stock should rise in price, the investor will have to put up more collateral. 
It is conceivable that the ratio writer would want to stay with his original posi­
tion as long as the stock did not penetrate the upside break-even point of 63. 
TABLE 6-2. 
Investment required. 
Covered writing portion (buy 100 XYZ and sell 1 call) 
50% of stock price 
Less premium received 
Requirement for covered portion 
Naked writing portion (sell 1 XYZ call) 
20% of stock price 
Less out-of-the-money amount 
Plus call premium 
Less premium received 
Requirement for naked portion 
Total requirement for ratio write 
$2,450 
600 
$1,850 
$ 980 
100 
+ 600 
600 
$ 880 
$2,730