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+112 Part II: Call Option Strategies 
+DEFENSIVE ACTION 
+Two follow-up strategies are sometimes employed by the call buyer when the under­
+lying stock declines in price. Both involve spread strategies; that is, being long and 
+short two different calls on the same underlying stock simultaneously. Spreads are 
+discussed in detail in later chapters. This discussion of spreads applies only to their 
+use by the call buyer. 
+·"Rolling Down." If an option holder owns an option at a currently unreal­
+ized loss, it may be possible to greatly increase the chances of making a limited 
+profit on a relatively small rebound in the stock price. In certain cases, the 
+investor may be able to implement such a strategy at little or no increase in risk. 
+Many call buyers have encountered a situation such as this: An XYZ October 35 
+call was originally bought for 3 points in hopes of a quick rise in the stock price. 
+However, because of downward movements in the stock- to 32, say- the call is now 
+at 1 ½ with October expiration nearer. If the call buyer still expects a mild rally in the 
+stock before expiration, he might either hold the call or possibly "average down" (buy 
+more calls at I½). In either case he will need a rally to nearly 38 by expiration in 
+order to break even. Since this would necessitate at least a 15% upward move by the 
+stock before expiration, it cannot be considered very likely. Instead, the buyer should 
+consider implementing the following strategy, which will be explained through the 
+use of an example. 
+Example: The investor is long the October 35 call at this time: 
+XYZ, 32; 
+XYZ October 35 call, 1 ½; and 
+XYZ October 30 call, 3. 
+One could sell two October 35's and, at the same time, buy one October 30 for no 
+additional investment before commissions. That is, the sale of 2 October 35's at $150 
+each would bring in $300, exactly the cost, before commissions, of buying the 
+October 30 call. This is the key to implementing the roll-down strategy: that one be 
+able to buy the lower strike call and sell two of the higher strike calls for nearly even 
+money. 
+Note that the investor is now short the call that he previously owned, the 
+October 35. Where he previously owned one October 35, he has now sold two of 
+them. He is also now long one October 30 call. Thus, his position is: