616 Part V: Index Options and Futu, 
A better alternative might be to roll his imbedded call up, thereby taking s01 
money out of the position but still retaining upside profit potential. Recall that t 
structured product had these terms: 
Guarantee price: 10 
Underlying index: S&P 500 index ($SPX) 
Striking price: 700 
As in the earlier example, the investor owns 15,000 shares of the structun 
product. Furthermore, assume that there are about two years remaining until mat 
rity of the structured product, and that the current prices are the same as in the pr 
vious example: 
Current price of structured product: 16.50 
Current price of $SPX: 1,200 
For purposes of simplicity, let's assume that there are listed two-year LEAP 
options available for the S&P index, whose prices are: 
S&P 2-year LEAPS, striking price 700: 550 
S&P 2-year LEAPS, striking price 1,200: 210 
In reality, S&P LEAPS options are normally reduced-value options, meanin. 
that they are for one-tenth the value of the index and thus sell for one-tenth the pricE 
However, for the purposes of this theoretical example, we will assume that the full 
value LEAPS shown here exist. 
It was shown in the previous example that the investor would trade two of thest 
calls as an equivalent amount to the quantity of calls imbedded in his structurec 
product. So, this investor could buy two of the 1,200 calls and sell two of the 700 calli 
and thereby roll his striking price up from 700 to 1,200. This roll would bring in 34( 
points, two times; or $68,000 less commissions. 
Since the difference in the striking prices is 500 points, you can see that he is 
leaving something "on the table" by receiving only 340 points for the roll-up. This is 
common when rolling up: One loses the time value premium of the vertical spread. 
However, when viewed from the perspective of what has been accomplished, the 
investor might still find this roll worthwhile. He has now raised the striking price of 
his call to 1,200, based on the S&P index, and has taken in $68,000 in doing so. Since 
he owns 15,000 shares of the structured product, that means he has taken in 4.53 p~r 
share (68,000 / 15,000). Now, for example, if the S&P crashes during the next two 
years and plummets below 700 at the maturity date, he will receive $10 as the guar­
antee price plus the $4.53 he got from the roll - a total "guarantee" of $14.53. Thus, 
he has protected his downside.