198 Part II: Call Option Strategies 
the fact that all the losses will be small and the infrequent large profits will be able 
to overcome these small losses, one should do nothing to jeopardize the strategy and 
possibly generate a large loss. 
The only reasonable sort of follow-up action that the bullish calendar spreader 
can take in advance of expiration is to close the spread if the underlying stock has 
moved up in price and the spread has widened to become profitable. This might 
occur if the stock moves up to the striking price after some time has passed. In the 
example above, if XYZ moved up to 50 with a month or so of life left in the April 50 
call, the call might be selling for I½ while the July 50 call might be selling for 3 
points. Thus, the spread could be closed at I½ points, representing a I-point gain 
over the initial debit of 1/2 point. Two commissions would have to be paid to close 
the spread, of course, but there would still be a net profit in the spread. 
USING ALL THREE EXPIRATION SERIES 
In either the neutral calendar spread or the bullish calendar spread, the investor has 
three choices of which months to use. He could sell the nearest-term call and buy the 
intermediate-term call. This is usually the most common way to set up these spreads. 
However, there is no rule that prevents him from selling the intermediate-term and 
buying the longest-term, or possibly selling the near-term and buying the long-term. 
Any of these situations would still be calendar spreads. 
Some proponents of calendar spreads prefer initially to sell the near-term and 
buy the long-term call. Then, if the near-term call expires worthless, they have an 
opportunity to sell the intermediate-term call if they so desire. 
Example: An investor establishes a calendar spread by selling the April 50 call and 
buying the October 50 call. The April call would have less than 3 months remaining 
and the October call would be the long-term call. At April expiration, if XYZ is below 
50, the April call will expire worthless. At that time, the July 50 call could be sold 
against the October 50 that is held long, thereby creating another calendar spread 
with no additional commission cost on the long side. 
The advantage of this type of strategy is that it is possible for the two sales (April 
50 and July 50 in this example) to actually bring in more credits than were spent for 
the one purchase (October 50). Thus, the spreader might be able to create a position 
in which he has a guaranteed profit. That is, if the sum of his transactions is actually 
a credit, he cannot lose money in the spread (provided that he does not attempt to 
"leg" out of the spread). The disadvantage of using the long-term call in the calendar 
spread is that the initial debit is larger, and therefore more dollars are initially at risk.