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+Chapter 23: Spreads Combining Calls and Puts 3S3 
+strategy discussed in this section is merely a combination of a diagonal bearish call 
+spread and a diagonal bullish put spread and is known as a "diagonal butterfly 
+spread." The same concept that was described in Chapter 14 - being able to make 
+more on the short-term call than one originally paid for the long-term call - applies 
+here as well. One enters into a credit position with the hope of being able to buy back 
+the near-term written options for a profit greater than the cost of the long options. If 
+he is able to do this, he will own options for free and could make large profits if the 
+underlying stock moves substantially in either direction. Even if the stock does not 
+move after the buy-back, he still has no risk. The risk occurs prior to the expiration 
+of the near-term options, but this risk is limited. As a result, this is an attractive strat­
+egy that, when operated over a period of market cycles, should produce some large 
+profits. Ideally, these profits would offset any small losses that had to be taken. Since 
+large commission costs are involved in this strategy, the strategist is reminded that 
+establishing the spreads in quantity can help to reduce the percentage effect of the 
+commissions. 
+SELECTING THE SPREADS 
+Now that the concepts of these three strategies have been laid out, let us define 
+selection criteria for them. The "calendar combination" is the easiest of these strate­
+gies to spot. One would like to have the stock nearly halfway between two striking 
+prices. The most attractive positions can normally be found when the striking prices 
+are at least 10 points apart and the underlying stock is relatively volatile. The opti­
+mum time to establish the "calendar combination" is two or three months before the 
+near-term options expire. Additionally, one would like the sum of the prices of the 
+near-term options to be equal to at least one-half of the cost of the longer-term 
+options. In the example given in the previous section on the "calendar combination," 
+the near-term combination was sold for 5 points, and the longer-term combination 
+was bought for 8 points. Thus, the near-term combination was worth more than one­
+half of the cost of the longer-term combination. These five criteria can be summa­
+rized as follows: 
+1. Relatively volatile stock. 
+2. Stock price nearly midway between two strikes. 
+3. Striking prices at least 10 points apart. 
+4. Two or three months remaining until near-term expiration. 
+5. Price of near-term combination greater than one-half the price of the longer­
+term combination.