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+Cl,opter 16:PutOptionBuying 
+LOSS-LIMITING ACTIONS 
+267 
+The foregoing discussion concentrated on how the put holder could retain or 
+increase his profit. However, it is often the case in option buying that the holder of 
+the option is faced with an unrealized loss. The put holder may also have several 
+choices of action to take in this case. His first, and simplest, course of action would 
+be to sell the put and take his loss. Although this is advisable in certain cases, espe­
+cially when the underlying stock seems to have assumed a distinctly bullish stance, it 
+is not always the wisest thing to do. The put holder who has a loss may also consider 
+either "rolling up" to create a bearish spread or entering into a calendar spread. 
+Either of these actions could help him recover part or all of his loss. 
+THE "ROLLING-UP" STRATEGY 
+The reader may recall that a similar action to "rolling up," termed "rolling down," was 
+available for call options held at a loss and was described in Chapter 3. The put buyer 
+who owns a put at a loss may be able to create a spread that allows him to break even 
+at a more favorable price at expiration. Such action will inevitably limit his profit 
+potential, but is generally useful in recovering something from a put that might oth­
+erwise expire totally worthless. 
+Example: An investor initially purchases an XYZ October 45 put for 3 points when 
+the underlying stock is at 45. However, the stock rises to 48 at a later date and the 
+put that was originally bought for 3 points is now selling for 1 ¼ points. It is not 
+unusual, by the way, for a put to retain this much of its value even though the stock 
+has moved up and some amount of time has passed, since out-of-the-money puts 
+tend to hold time value premium rather well. With XYZ at 48, an October 50 put 
+might be selling for 3 points. The put holder could create a position designed to per­
+mit recovery of some of his losses by selling two of the puts that he is long - October 
+45's - and simultaneously buying one October 50 put. The net cost for this transac­
+tion would be only commissions, since he receives $300 from selling two puts at 1 ¼ 
+each, which completely covers the $300 cost of buying the October 50 put. The 
+transactions are summarized in Table 16-6. 
+By selling 2 of the October 45 puts, the investor is now short an October 45 put. 
+Since he also purchased an October 50 put, he has a spread ( technically, a bear 
+spread). He has spent no additional money, except commissions, to set up this spread, 
+since the sale of the October 45's covered the purchase of the October 50 put. This 
+strategy is most attractive when the debit involved to create the spread is small. In 
+this example, the debit is zero.