24  •   The Intelligent Option Investor
Here an investor is bullish on the prospects of the stock and is tailor -
ing where to gain and accept exposure by selling a short-term put and 
simultaneously buying a longer-term call. By doing this, the investor 
basically subsidizes the purchase of the call option with the sale of the 
put option, thereby reducing the level the stock needs to exceed on the 
upside before one breaks even. In this case, we’re assuming that the call 
option costs $1.50 and the put option trades for $1.00. The cash inflow 
from the put option partially offsets the cash outflow from the call op-
tion, so the total breakeven amount is just the call’s $60 strike price plus 
the net of $0.50.
Effective Buy Price/Effective Sell Price
One thing that I hope you realized while looking at each of the preceding 
diagrams is how similar each of them looks to a particular part of our long 
and short stock diagrams:
Buying a stock.
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20
40
60
80
100
120
140
160
180
200
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20
40
60
80
100
120
140
160
180
200
RED
GREEN
GREEN
RED
Short selling a stock.
For example, doesn’t the diagram labeled “Buying a call for growth” 
in the preceding section look just like the top part of the buying stock 
diagram?