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+194 Part II: Call Option Strategies 
+above 60 for the maximum loss to occur. Even if the stock is at 40 or 60, there is some 
+time premium left in the longer-term option, and the loss is not quite as large as the 
+maximum possible loss of $300. 
+This type of calendar spread has limited profits and relatively large commission 
+costs. It is generally best to establish such a spread 8 to 12 weeks before the near­
+term option expires. If this is done, one is capitalizing on the maximum rate of decay 
+of the near-term option with respect to the longer-term option. That is, when a call 
+has less than 8 weeks of life, the rate of decay of its time value premium increases 
+substantially with respect to the longer-term options on the same stock. 
+THE EFFECT OF VOLATILITY 
+The implied volatility of the options (and hence the actual volatility of the underly­
+ing stock) will have an effect on the calendar spread. As volatility increases, the 
+spread widens; as volatility contracts, the spread shrinks. This is important to know. 
+In effect, buying a calendar spread is an antivolatility strategy: One wants the under­
+lying to remain somewhat unchanged. Sometimes, calendar spreads look especially 
+attractive when the underlying stock is volatile. However, this can be misleading for 
+two reasons. First of all, since the stock is volatile, there is a greater chance that it will 
+move outside of the profit area. Second, if the stock does stabilize and trades in a 
+range near the striking price, the spread will lose value because of the decrease in 
+volatility. That loss may be greater than the gain from time decay! 
+FOLLOW-UP ACTION 
+Ideally, the spreader would like to have the stock be just below the striking price 
+when the near-term call expires. If this happens, he can close the spread with only 
+one commission cost, that of selling out the long call. If the calls are in-the-money at 
+the expiration date, he will, of course, have to pay two commissions to close the 
+spread. As with all spread positions, the order to close the spread should be placed 
+as a single order. "Legging" out of a spread is highly risky and is not recommended. 
+Prior to expiration, the spreader should close the spread if the near-term short 
+call is trading at parity. He does this to avoid assignment. Being called out of spread 
+position is devastating from the viewpoint of the stock commissions involved for the 
+public customer. The near-term call would not normally be trading at parity until 
+quite close to the last day of trading, unless the stock has undergone a substantial rise 
+in price. 
+In the case of an early downside breakout by the underlying stock, the spread­
+er has several choices. He could immediately close the spread and take a small loss