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+Cl,opter 4: Other Call Buying Strategies 125 
+This is a relatively small percentage risk in a position that could have very large prof­
+its. There is also very little chance that the entire maximum loss would ever be real­
+ized since it occurs only at one specific stock price. One should not be deluded into 
+thinking that this strategy is a sure money-maker. In general, stocks do not move very 
+far in a 3- or 6-month period. With careful selection, though, one can often find sit­
+uations in which the stock will be able to move far enough to reach the break-even 
+points. Even when losses are taken, they are counterbalanced by the fact that signif­
+icant gains can be realized when the stock moves by a great distance. 
+It is obvious from the information above that profits are made if the stock moves 
+far enough in either direction. In fact, one can determine exactly the prices beyond 
+which the stock would have to move by expiration in order for profits to result. These 
+prices are 34 and 46 in the foregoing example. The downside break-even point is 34 
+and the upside break-:even point is 46. These break-even points can easily be com­
+puted. First, the maximum risk is computed. Then the break-even points are deter­
+mined. 
+Maximum risk = Striking price + 2 x Call price - Stock price 
+Upside break-even point = Striking price + Maximum risk 
+Downside break-even point = Striking price - Maximum risk 
+In the preceding example, the striking price was 40, the stock price was also 40, 
+and the call price was 3. Thus, the maximum risk = 40 + 2 x 3 - 40 = 6. This con­
+firms that the maximum risk in the position is 6 points, or $600. The upside break­
+even point is then 40 + 6, or 46, and the downside break-even point is 40 - 6, or 34. 
+These also agree with Table 4-2 and Figure 4-2. 
+Before expiration, profits can be made even closer to the striking price, because 
+there will be some time value premium left in the purchased calls. 
+Example: IfXYZ moved to 45 in one month, each call might be worth 6. If this hap­
+pened, the investor would have a 5-point loss on the stock, but would also have a 3-
+point gain on each of the two options, for a net overall gain of 1 point, or $100. Before 
+expiration, the break-even point is clearly somewhere below 46, because the position 
+is at a profit at 45. 
+Ideally, one would like to find relatively underpriced calls on a fairly volatile 
+stock in order to implement this strategy most effectively. These situations, while not 
+prevalent, can be found. Normally, call premiums quite accurately reflect the volatil­
+ity of the underlying stock. Still, this strategy can be quite viable, because nearly 
+every stock, regardless of its volatility, occasionally experiences a straight-line, fairly 
+large move. It is during these times that the investor can profit from this strategy.