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+352 Part Ill: Put Option Strategies 
+not attempt to leg out of a spread, but this is an exception to that rule, since one owns 
+a long combination and therefore is protected; he is not subjecting himself to large 
+risks by attempting to "leg out" of the straddle he has written. 
+Example: XYZ rallies before January expiration and the January 40 put drops to a 
+price of ½ during the rally. Even though there is time remaining until expiration, the 
+strategist might decide to buy back the put at ½. This could potentially increase his 
+overall risk by ½ point if the stock continues to rise. However, if the stock then 
+reversed itself and fell, he could attempt to buy the call back at 2½ points or less. In 
+this manner, he would still achieve his objective of buying the short-term straddle 
+back for 3 points or less. In fact, he might be able to close both sides of the straddle 
+well before near-term expiration if the underlying stock first moves quickly in one 
+direction and then reverses direction by a large amount. 
+The maximum risk and the optimum potential objectives have been described, 
+but interim results might also be considered in this strategy. 
+Example: XYZ is at 44 at January expiration. The January 40 straddle must be bought 
+back for 4 points. This means that the long combination will not be owned free, but 
+will have a cost of I point plus commissions. The strategist must decide at this time 
+if he wants to hold on to the April options or if he wants to sell them, possibly pro­
+ducing a small overall profit on the entire position. There is no ironclad rule in this 
+type of situation. If the decision is made to hold on to the longer-term options, the 
+strategist realizes that he has assumed additional risk by doing so. Nevertheless, he 
+may decide that it is worth owning the long combination at a relatively low cost. The 
+cost in this example would be I point plus commissions, since he paid 4 points to buy 
+back the straddle after only taking in a 3-point credit initially. The more ex.pensive the 
+buy-back of the near-term straddle is, the more the strategist should be readily will­
+ing to sell his long options at the same time. For example, if XYZ were at 48 at 
+January expiration and the January 40 straddle had to be bought back for 8 points, 
+there should be no question that he should simultaneously sell his April options as 
+well. The most difficult decisions come when the stock is just outside the optimum 
+buy-back area at near-term expiration. In this example, the strategist would have a 
+fairly difficult decision if XYZ were in the 44 to 45 area or in the 35 to 36 area at 
+January expiration. 
+The reader may recall that, in Chapter 14 on diagonalizing a spread, it was men­
+tioned that one is sometimes able to own a call free by entering into a diagonal cred­
+it spread. A diagonal bear spread was given as an example. The same thing happens 
+to be true of a diagonal bullish put spread, since that is a credit spread as well. The