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+404 Part Ill: Put Option Strategies 
+Example: The following prices exist in the month of January: 
+XYZ: 105 
+April 100 call: 10 1/2 
+April 110 call: 5 1/2 
+January (2-year) 100 call: 26 
+January (2-year) 110 call: 21 1/2 
+An investor is considering a bull spread in XYZ and is unsure about whether to use 
+the short-term calls, the LEAPS calls, or a mixture. These are his choices: 
+Short-term bull spread: 
+Diagonal bull spread: 
+LEAPS bull spread: 
+Buy April 100@ 101/2 
+Sell April 110@ 51/2 
+Net Debit: $500 
+Buy January LEAPS 100 @ 26 
+Sell April 110@ 51/2 
+Net Debit: $2,050 
+Buy January LEAPS 1 00 @ 26 
+Sell January LEAPS 110@ 21 1/2 
+Net Debit: $450 
+Notice that the debit paid for the LEAPS spread is slightly less than that of the short­
+term bull spread. This means that they have approximately the same profit potential 
+at their respective expiration dates. However, the strategist is more concerned with 
+how these compare directly with each other. The obvious point in time to make this 
+comparison is when the short-term options expire. 
+Figure 25-7 shows the profitability of these three positions at April expiration. 
+It was assumed that all of the following were the same in April as they had been in 
+January: volatility, short-term rates, and dividend payout. 
+Note that the short-term bull spread has the familiar profit graph from Chapter 
+7, making its maximum profit over 110 and taking its maximum loss below 100. (See 
+Table 25-4.) 
+The LEAPS spread doesn't generate much of either a profit or a loss in only 
+three months' time. Even if XYZ rises to 120, the LEAPS bull spread will have only 
+a $150 profit. Conversely, if XYZ falls to 80, the spread loses only about $200. This 
+price action is very typical for long-term bull spreads when both options have a sig­
+nificant amount of time premium remaining in them.