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A call option writing strategy which mandates an increase in the short call position as the price of the underlying rises. The dynamic overwriter may begin by selling calls covered by 10 percent of the underlying position. If the price of the underlying rises, he may repurchase these calls at a loss and sell calls with a higher strike and a greater aggregate premium against 20 percent of the underlying position and so on. In effect, the dynamic overwriter counts on mean reversion in the price of the underlying as he increases a short position most aggressively when the position is proving most unprofitable. Results of this strategy measured by the performance of the option position alone are characterized by long periods of modest profitability interrupted by enormous losses when the market rises sharply. See also Overwriting.
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