38 lines
1.1 KiB
Plaintext
38 lines
1.1 KiB
Plaintext
Chapter 2: Covered Call Writing 75
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rolling down if the stock drops further, remains unchanged, or even rises slightly.
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Table 2-22 and Figure 2-4 compare the original write with the rolled-down position.
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It is clear from the figure that the rolled-down position is locked into a loss. However,
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the rolled-down position still outperforms the original position unless the stock ral
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lies back above 17 by expiration. Thus, if the stock continues to fall, if it remains
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unchanged, or even if it rallies less than 1 point, the rolled-down position actually
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outperforms the original write. It is for this reason that the writer is taking the most
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logical action by rolling down, even though to do so locks in a loss.
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TABLE 2-22.
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Profits of original write and rolled position.
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Stock Price at Profit from
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Expiration January 20 Write
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10 -$800
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15 - 300
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18 0
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20 + 200
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25 + 200
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FIGURE 2-4.
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Comparison: original write vs.
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11
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locked-in loss."
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c: +$200 Original Write
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~
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t
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«i
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~
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o -$100
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~ a..
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15 20
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Stock Price at Expiration
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Profit from
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Rolled Position
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-$600
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- 100
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- 100
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- 100
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- 100 |