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+Chapter 21: Synthetic Stock Positions Created by Puts and Calls 327 
+somewhat expensive also. Thus, if he is right about the bullish attitude on the stock, 
+he owns a call that is more "fairly priced" because its cost was reduced by the amount 
+of the put sale. 
+BEARISHLY ORIENTED 
+There is a companion strategy for the investor who is bearish on a stock. He could 
+attempt to buy an out-of-the-money put, giving himself the opportunity for substan­
+tial profits in a stock price decline, and could "finance" the purchase of the put by 
+writing an out-of-the-money call naked. The sale of the call would provide profits if 
+the stock stayed below the striking price of the call, but could cost him heavily if the 
+underlying stock rallies too far. 
+Example: With XYZ at 65, the bearish investor buys a February 60 put for 2 points, 
+and simultaneously sells a February 70 call for 3 points. These trades bring in a cred­
+it of 1 point, less commissions. The investor must collateralize the sale of the call. If 
+XYZ should decline substantially by February expiration, large profits are possible 
+because the February 60 put is owned. Even if XYZ does not perform as expected, 
+but still ends up anywhere between 60 and 70 at expiration, the profit will be equal 
+to the initial credit because both options will expire worthless. However, if the stock 
+rallies above 70, unlimited losses are possible because there is a naked call at 70. 
+Table 21-4 and Figure 21-2 show the results of this strategy at expiration. 
+This is clearly an aggressively bearish strategy. The investor would like to own 
+an out-of-the-money put for downside potential. In addition, he sells an out-of-the­
+money call, normally for a price greater than that of the purchased put. The call sale 
+TABLE 21-4. 
+Bearishly split strikes. 
+XYZ Price at February 60 February 70 Total 
+Expiration Put Profit Call Profit Profit 
+50 +$800 +$300 +$1, 100 
+55 + 300 + 300 + 600 
+60 - 200 + 300 + 100 
+65 - 200 + 300 + 100 
+70 - 200 + 300 + 100 
+75 - 200 - 200 400 
+80 - 200 - 700 900