Advanced English Dialogue for Business – Graduated call writing

Listen to a Business English Dialogue about Graduated call writing

Gerald: Hi Ariana, have you heard about “graduated call writing” in finance?

Ariana: No, I haven’t. What does it entail?

Gerald: Graduated call writing involves selling call options on a stock gradually over time, starting with a small portion of the total position and increasing the number of options sold as the stock’s price rises.

Ariana: How does graduated call writing benefit investors?

Gerald: It allows investors to generate additional income from their stock holdings by collecting premiums from selling call options, while also potentially reducing the average cost basis of their shares over time.

Ariana: What risks are associated with graduated call writing?

Gerald: The main risk is that if the stock’s price rises significantly, investors may miss out on potential capital gains beyond the strike price of the call options they sold.

Ariana: Can you explain how the strategy of graduated call writing works in practice?

Gerald: Sure. Let’s say an investor owns 100 shares of a stock trading at $50 per share. They may start by selling one call option with a strike price of $55, collecting the premium. As the stock’s price rises, they gradually sell more call options at higher strike prices.

Ariana: How does the strike price of the call options affect the strategy?

Gerald: The strike price determines the price at which the investor is obligated to sell their shares if the option is exercised. By selling call options with higher strike prices, investors can potentially capture more upside while still generating income.

Ariana: Are there any scenarios where graduated call writing may not be suitable?

Gerald: Graduated call writing may not be suitable in a rapidly rising market where investors believe the stock’s price could continue to appreciate significantly beyond the strike prices of the call options they sold.

Ariana: It seems like graduated call writing requires careful consideration of market conditions and the investor’s outlook on the stock’s price movements.

Gerald: Absolutely, like any options strategy, graduated call writing requires a thorough understanding of the risks and rewards involved, as well as ongoing monitoring of market dynamics.