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+Chapter 10: Tire Butterfly Spread 207 
+can estimate that the commission cost for each option is about 1/s point. That is, if one 
+has 10 butterfly spreads and the spread is currently at 6 points, he could figure that 
+he would net about 5½ points after commissions to close the spread. This 1/s estimate 
+is only valid if the spreader has at least 10 options at each strike involved in a spread. 
+Normally, one would not close the spread early to limit losses, since these loss­
+es are limited to the original net debit in any case. However, if the original debit was 
+large and the stock is beginning to break out above the higher strike or to break down 
+below the lower strike, the spreader may want to close the spread to limit losses even 
+further. 
+It has been repeatedly stated that one should not attempt to ''leg" out of a 
+spread because of the risk that is incurred if one is wrong. However, there is a 
+method of legging out of a butterfly spread that is acceptable and may even be pru­
+dent. Since the spread consists of both a bull spread and a bear spread, it may often 
+be the case that the stock experiences a relatively substantial move in one direction 
+or the other during the life of the butterfly spread, and that the bull spread portion 
+or the bear spread portion could be closed out near their maximum profit potentials. 
+If this situation arises, the spreader may want to take advantage of it in order to be 
+able to profit more if the underlying stock reverses direction and comes back into the 
+profit range. 
+Exampk: This strategy can be explained by using the initial example from this chap­
+ter and then assuming that the stock falls from 60 to 45. Recall that this spread was 
+initially established with a 3-point debit and a maximum profit potential of 7 points. 
+The profit range was 53 to 67 at July expiration. However, a rather unpleasant situa­
+tion has occurred: The stock has fallen quickly and is below the profit range. If the 
+spreader does nothing and keeps the spread on, he will lose 3 points at most if the 
+stock remains below 50 until July expiration. However, by increasing his risk slightly, 
+he may be able to improve his position. Notice in Table 10-3 that the bear spread por­
+tion of the overall spread - short July 60, long July 70 - has very nearly reached its 
+maximum potential. The bear spread could be bought back for ½ point total (pay 1 
+point to buy back the July 60 and receive½ point from selling out the July 70). Thus, 
+the spreader could convert the butterfly spread to a bull spread by spending ½ point. 
+What would such an action do to his overall position? First, his risk would be 
+increased by the ½ point spent to close the bear spread. That is, if XYZ continues to 
+remain below 50 until July expiration, he would now lose 3½ rather than 3 points, 
+plus commissions in either case. He has, however, potentially helped his chances of 
+realizing something close to the maximum profit available from the original butterfly 
+spread.