344 Part Ill: Put Option Strategies 
it of 9.30. Since the maximum value of the spread is l 0, one is giving away 70 cents, 
quite a bit for just such a short time remaining. 
However, suppose that one looks at the puts and finds these prices: 
Put 
January 80 put 
January 70 put 
Bid Price 
0.20 
none 
Asked Price 
0.40 
0.10 
One could "lock in" his call spread profits by buying the January 80 put for 40 cents. 
Ignoring commissions for a moment, if he bought that put and then held it along with 
the call spread until expiration, he would unwind the call spread for a 10 credit at 
expiration. He paid 40 cents for the put, so his net credit to exit the spread would be 
9.60 - considerably better than the 9.30 he could have gotten above for the call 
spread alone. 
This put strategy has one big advantage: If the underlying stock should sudden­
ly collapse and tumble beneath 70 - admittedly, a remote possibility - large profits 
could accrue. The purchase of the January 80 put has protected the bull spread's 
profits at all prices. But below 70, the put starts to make extra money, and the spread­
er could profit handsomely. Such a drop in price would only occur if some material­
ly damaging news surfaced regarding X'iZ Company, but it does occasionally happen. 
If one utilizes this strategy, he needs to carefully consider his commission costs 
and the possibility of early assignment. For a professional trader, these are irrelevant, 
and so the professional trader should endeavor to exit bull spreads in this manner 
whenever it makes sense. However, if the public customer allows stock to be assigned 
at 80 and exercises to buy stock at 70, he will have two stock commissions plus one 
put option commission. That should be compared to the cost of two in-the-money 
call option commissions to remove the call spread directly. Furthermore, if the pub­
lic customer receives an early assignment notice on the short January 80 calls, he may 
need to provide day-trade margin as he exercises his January 70 calls the next day. 
Without going into as much detail, a bear spread's profits can be locked in via a 
similar strategy. Suppose that one owns a January 60 put and has sold a January 50 
put to create a bear spread. Later, with the stock at 45, the spreader wants to remove 
the spread, but again finds that the markets for the in-the-money puts are so wide 
that he cannot realize anywhere near the 10 points that the spread is theoretically 
worth. He should then see what the January 50 call is selling for. If it is fractionally 
priced, as it most likely will be if expiration is drawing nigh, then it can be purchased 
to lock in the profits from the put spread. Again, commission costs should be con­
sidered by the public customer before finalizing his strategy.