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+208 Part II: Call Option Strategies 
+TABLE 10-3. 
+Initial spread and current prices. 
+Initial Spread Current Prices 
+XYZ common: 60 XYZ common: 45 
+July 50 call: 12 July 50 call: 2 
+July 60 call: 6 July 60 call: 1 
+July 70 call: 3 July 70 call: 1/2 
+After buying back the bear spread, he is left with the following bull spread: 
+Long July 50 call _ N t d b·t 3u, . t 
+h l all e e 1 ,2 pom s S ort Ju y 60 c 
+He has a bull spread at the total cost paid to date - 3½ points. From the earlier dis­
+cussion of bull spreads, the reader should know that the break-even point for this 
+position is 53½ at expiration, and it could make a 6½ point profit if XYZ is anywhere 
+over 60 at July expiration. Hence, the break-even point for the position was raised 
+from 53 to 53½ by the expense of the ½ point to buy back the bear spread. However, 
+if the stock should rally back above 60, the strategist will be making a profit nearly 
+equal to the original maximum profit that he was aiming for (7 points). Moreover, this 
+profit is now available anywhere over 60, not just exactly at 60 as it was in the origi­
+nal position. Although the chances of such a rally cannot be considered great, it does 
+not cost the spreader much to restructure himself into a position with a much broad­
+er maximum profit area. 
+A similar situation is available if the underlying stock moves up in price. In that 
+case, the bull spread may be able to be removed at nearly its maximum profit poten­
+tial, thereby leaving a bear spread. Again, suppose that the same initial spread was 
+established but that XYZ has risen to 75. When the underlying stock advances sub­
+stantially, the bull spread portion of the butterfly spread may expand to near its max­
+imum potential. Since the strikes are 10 points apart in this bull spread, the widest it 
+can grow to is 10 points. At the prices shown in Table 10-4, the bull spread - long 
+July 50 and short July 60 - has grown to 9½ points. Thus, the bull spread position 
+could be removed within ½ point of its maximum profit potential and the original 
+butterfly spread would become a bear spread. Note that the closing of the bull spread 
+portion generates a 9½ point credit: The July 50 is sold at 25½ and the July 60 is 
+bought back at 16. The original butterfly spread was established at a 3-point debit, so 
+the net position is the remaining position: