Partial Coverage Strategies

One variation of variable hedging involves cutting partial losses through partial coverage. This strategy is known as a ratio write. When you sell one call for every 100 shares owned, you have provided one-to-one coverage. A ratio write exists when the relationship between long and short positions is not identical. The ratio can be greater on either the long side or the short side. See Table below.

Ratio Writes

Calls SoldShares OwnedPercent CoverageRatio
17575%1 to
By Michael C. Thomsett
Michael Thomsett is a British-born American author who has written over 75 books covering investing, business and real estate topics.

Copyrighted 2016. Content published with author's permission.