The Cardiopulmonary Resuscitation Technique

As detailed in Hooper and Zalewski's book, Covered Calls and Leaps, what follows is a defensive technique used to resuscitate a fallen stock, the Cardiopulmonary Resuscitation Technique otherwise known as CPR. (see the flowchart below)

Two applications of the CPR technique:

1. To dramatically expedite the closing of a new covered call position where the stock price has suffered an immediate decline after entering the transaction. The CPR provides this ability as in many cases, it allows the investor to lower the strike price of the short call in the near month, yet continue to maintain a positive called return.
2. To generate income and reduce the cost basis in a deeply depressed position. The CPR can effectively be applied where an under-performing stock is now in an upward cycle but the cycle's depth is too shallow to effectively use the TSS for income.

The Structure of a CPR

1. An investor holds a long position of 100 shares of stock.
2. The investor buys one near month (or 2 month out) call.
3. The investor sells 2 near month (or 2 month out) calls with a higher strike price than the call selected in step 2.