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+116 Part II: Call Option Strategies 
+spread could make is now $100, less commissions. The alternative in this example is 
+not nearly as attractive as the previous one, but it might still be worthwhile for the 
+call buyer to invoke such a spread if he feels that XYZ has limited rally potential up 
+to October expiration. 
+One should not automatically discard the use of this strategy merely because a 
+debit is required to convert the long call to a spread. Note that to "average down" by 
+buying an additional October 35 call at 1 ½ would require an additional investment 
+of $150. This is more than the $100 required to convert into the spread position in 
+the immediately preceding example. The break-even point on the position that was 
+"averaged down" would be over 37 at expiration, whereas the break-even point on the 
+spread is 34. Admittedly, the averaged-down position has much more profit potential 
+than the spread does, but the conversion to the spread is less expensive than "aver­
+aging down" and also provides a lower break-even price. 
+In summary, then, if the call buyer finds himself with an unrealized loss because 
+the stock has declined, and yet is unwilling to sell, he may be able to improve his 
+chances of breaking even by "rolling down" into a spread. That is, he would sell 2 of 
+the calls that he is currently long - the one that he owns plus another one - and 
+simultaneously buy one call at the next lower striking price. If this transaction of sell­
+ing 2 calls and buying 1 call can be done for approximately even money, it could def­
+initely be to the buyer's benefit to implement this strategy, because the break-even 
+point would be lowered considerably and the buyer would have a much better 
+chance of getting out even or making a small profit should the underlying stock have 
+a small rebound. 
+Creating a Calendar Spread. A different type of defensive spread strategy 
+is sometimes used by the call buyer who finds that the underlying stock has declined. 
+In this strategy, the holder of an intermediate- or long-term call sells a near-term call, 
+with the same striking price as the call he already owns. This creates what is known 
+as a calendar spread. The idea behind doing this is that if the short-term call expires 
+worthless, the overall cost of the long call will be reduced to the buyer. Then, if the 
+stock should rally, the call buyer has a better chance of making a profit. 
+Example: Suppose that an investor bought an XYZ October 35 call for 3 points some­
+time in April. By June the stock has fallen to 32, and it appears that the stock might 
+remain depressed for a while longer. The holder of the October 35 call might con­
+sider selling a July 35 call, perhaps for a price of 1 point. Should XYZ remain below 
+35 until July expiration, the short call would expire worthless, earning a small, 1-point 
+profit. The investor would still own the October 35 call and would then hope for a 
+rally by XYZ before October in order to make profits on that call. Even if XYZ does