O.,ter 3: Call Buying 
TABLE 3-5. 
Original and spread positions compared. 
Stock Price Long Call 
at Expiration Result 
25 -$300 
30 - 300 
33 - 300 
35 - 300 
38 0 
40 + 200 
45 + 700 
FIGURE 3-2. 
Companion: original call purchase vs. spread. 
§ 
~ +$200 
·5.. 
~ 
al 
tJ) 
.3 
0 
:1: 
e 
c.. -$300 
Stock Price at Expiration 
Spread 
Result 
-$300 
- 300 
0 
+ 200 
+ 200 
+ 200 
+ 200 
115 
With these prices, a 1-point debit would be required to roll down. That is, selling 2 
October 35 calls would bring in $300 ($150 each), but the cost of buying the October 
30 call is $400. Thus, the transaction would have to be done at a cost of $100, plus 
commissions. With these prices, the break-even point after rolling down would be 34, 
still well below the original break-even price of 38. The risk has now been increased 
by the additional 1 point spent to roll down. If XYZ should drop below 30 at October 
expiration, the investor would have a total loss of 4 points plus commissions. The 
maximum loss with the original long October 35 call was limited to 3 points plus a 
smaller amount of commissions. Finally, the maximum amount of money that the