80 Part II: Call Option Strategies 
points from the July 60 - less the 11 points he paid to buy back the July 50. Thus, his 
option profits would amount to 2 points, which, added to the stock profit of 10 points, 
increases his maximum profit potential to 12 points anywhere above 60 at July expi­
ration. 
To increase his profit potential by such a large amount, the covered writer has 
given up some of his downside protection. The downside break-even point is always 
raised by the anwunt of the debit required to roll up. The debit required to roll up in 
this example is 4 points - buy the July 50 at 11 and sell the July 60 at 7. Thus, the 
break-even point is increased from the original 44 level to 48 after rolling up. There 
is another method of calculating the new profit potential and break-even point. In 
essence, the writer has raised his net stock cost to 55 by taking the realized 5-point 
loss on the July 50 call. Hence, he is essentially in a covered write whereby he has 
bought stock at 55 and has sold a July 60 call for 7. When expressed in this manner, 
it may be easier to see that the break-even point is 48 and the maximum profit poten­
tial, above 60, is 12 points. 
Note that when one rolls up, there is a debit incurred. That is, the investor must 
deposit additional cash into the covered writing position. This was not the case in 
rolling down, because credits were generated. Debits are considered by many 
investors to be a seriously negative aspect of rolling up, and they therefore prefer 
never to roll up for debits. Although the debit required to roll up may not be a neg­
ative aspect to every investor, it does translate directly into the fact that the break­
even point is raised and the writer is subjecting himself to a potential loss if the stock 
should pull back. It is often advantageous to roll to a more distant expiration when 
rolling up. This will reduce the debit required. 
The rolled-up position has a break-even point of 48. Thus, if XYZ falls back to 
48, the writer who rolled up will be left with no profit. However, if he had not rolled 
up, he would have made 4 points with XYZ at 48 at expiration in the original position. 
A further comparison can be made between the original position and the rolled-up 
position. The two are equal at July expiration at a stock price of 54; both have a prof­
it of 6 points with XYZ at 54 at July expiration. Thus, although it may appear attrac­
tive to roll up, one should determine the point at which the rolled-up position and 
the original position will be equal at expiration. If the writer believes XYZ could be 
subject to a 10% correction by expiration from 60 to 54 - certainly not out of the 
question for any stock - he should stay with his original position. 
Figure 2-5 compares the original position with the rolled-up position. Note that 
the break-even point has moved up from 44 to 48; the maximum profit potential has 
increased from 6 points to 12 points; and at expiration the two writes are equal, at 54. 
In summary, it can be said that rolling up increases one's profit potential but also 
exposes one to risk of loss if a stock price reversal should occur. Therefore, an ele-