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+would have been if a short-term, less expensive August 60 call were the
+long leg of this spread.
+Rolling the Spread
+The July–December spread is different from short-term spreads, however.
+When the Julys expire, the August options will have 29 days until
+expiration. If volatility is still the same, XYZ is still at $60, and the trader’s
+forecast is still neutral, the 29-day August 60 calls can be sold for 1.45. The
+trader can either wait until the Monday after July expiration and then sell
+the August 60s, or when the Julys are offered at 0.05 or 0.10, he can buy the
+Julys and sell the Augusts as a spread. In either case, it is called rolling the
+spread. When the August expires, he can sell the Septembers, and so on.
+The goal is to get a credit month after month. At some point, the
+aggregate credit from the call sales each month is greater than the price
+initially paid for the long leg of the spread, thus eliminating the original net
+debit. Exhibit 11.6 shows how the monthly credits from selling the one-
+month calls aggregate over time.
+EXHIBIT 11.6 A “free” call.
+After July has expired, 1.45 of premium is earned. After August
+expiration, the aggregate increases to 2.90. When the September calls,
+which have 36 days until expiration, are sold, another 1.60 is added to the
+total premium collected. Over three months—assuming the stock price,
+volatility, and the other inputs don’t change—this trader collects a total of
+4.50. That’s 0.50 more than the price originally paid for the December 60
+call leg of the spread.
+At this point, he effectively owns the December call for free. Of course,
+this call isn’t really free; it’s earned. It’s paid for with risk and maybe a few
+sleepless nights. At this point, even if the stock and, consequently, the