CPR Part Two

The Structure of a CPR (as presented in Hooper and Zalewski's book, Covered Calls and Leaps)

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.

The CPR will always follow the above structure.

The investor will always purchase the number of call options that relates to his or her stock holding and will always sell 2 times the number of call options that relates to his or her stock holdings.

example:

Dale holds 300 stocks at $32.50

He then buys 3 near month (or 2 month out) calls at $25 strike at $4.00 and

He sells 6 near month (or 2 month out) calls with a higher strike price than the call selected in 2 ... a $30 strike at $1.50.