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training_data/relevant/text/7a54249580b035c08bc30a5adf5c09138be1503c0188d3845b575f6092da34c6.txt

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+350 Part Ill: Put Option Strategies 
+quently than the case in which both the out-of-the-money put and call expire worth­
+less in the previous strategy. Thus, the "calendar combination" strategy will afford the 
+spreader more opportunities for large profits, and will also never force him to 
+increase his risk. 
+OWNING A ✓,,FREE" COMBINATION (THE ""DIAGONAL 
+BUTTERFLY SPREAD") 
+The strategies described in the previous sections are established for debits. This 
+means that even if the near-term options expire worthless, the strategist still has risk. 
+The long options he then holds could proceed to expire worthless as well, thereby 
+leaving him with an overall loss equal to his original debit. There is another strategy 
+involving both put and call options that gives the strategist the opportunity to own a 
+"free" combination. That is, the profits from the near-term options could equal or 
+exceed the entire cost of his long-term options. 
+This strategy consists of selling a near-term straddle and simultaneously pur­
+chasing both a longer-term, out-of the-money call and a longer-term, out-of the­
+money put. This differs from the protected straddle write previously described in that 
+the long options have a more distant maturity than do the short options. 
+Example: 
+XYZ common: 40 
+April 35 put: 
+January 40 straddle: 
+April 45 call: 
+If one were to sell the short-term January 40 straddle for 7 points and simultaneous­
+ly purchase the out-of-the-money put and call combination -April 35 put and April 
+45 call - he would establish a credit spread. The credit for the position is 3 points less 
+commissions, since 7 points are brought in from the straddle sale and 4 points are 
+paid for the out-of-the-money combination. Note that the position technically con­
+sists of a bearish spread in the calls - buy the higher strike and sell the lower strike -
+coupled with a bullish spread in the puts - buy the lower strike and sell the higher 
+strike. The investment required is in the form of collateral since both spreads are 
+credit spreads, and is equal to the differential in the striking prices, less the net cred­
+it received. In this example, then, the investment would be 10 points for the striking 
+price differential (5 points for the calls and 5 points for the puts) less the 3-point 
+credit received, for a total collateral requirement of $700, plus commissions.