You end up with an equity curve that is fairly flat most of the time with only occasional upward spikes

Two reasons. First, the money we invest in the company doesn't just lie idle; it generates annual income—8.5 percent using the example we just discussed—until we price the stock. Second, since the maximum price we will have to pay for the stock is capped—$16 in our example—we can sell out-of-the-money calls against this position, thereby guaranteeing an additional minimum revenue.

[By selling options that give buyers the right to buy the stock at a specified price above the current price, Fletcher gives up part of his windfall profit in the event the stock price rises sharply. But, in exchange, he collects premiums (that is, the cost of the options) that augment his income on the deal regardless of what happens to the stock price.]

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