There are a variety of factors that can limit the set of allowable code words that are useable on an optical memory block. In this paper, we will primarily consider inter- symbol interference (ISI) and the noise margins required to represent an individual bit. Fo example, code words must maintain a specific topological separation of '1' bits so that ISI does not raise the intensity of neighboring '0's' above a pre-set threshold. Typically this is accomplished by a static encoding that uses a pre-selected set of code words based on these properties of the storage media and the optical system. Alternatively, our approach provides for a dynamic analysis of all data currently stored in the region surrounding a particular block and defines the allowable code words uniquely for each block. We assume the existence of a 'smart' read head that is capable of analyzing a page of data and calculating the allowable codes in real-time based on the actual data in the surrounding region. We use point-spread function based mathematical model for optical readout system to evaluate and carry out data encoding. Our experiments show 81% spatial utilization while recent publications present only 45% utilization.