Chapter 22: Basic Put Spreads 335 
make the I-point profit from the sale of that put, reducing his net cost for the April 
50 put to ½ point. Then, he would become bearish, hoping for the underlying stock 
to decline in price substantially before April expiration in order that he might be able 
to generate large profits on the April 50 put he holds. 
Just as the bullish calendar spread with calls can be a relatively attractive strat­
egy, so can the bearish calendar spread with puts. Granted, two criteria have to be 
fulfilled in order for the position to work to the optimum: The near-term put must 
expire worthless, and then the underlying stock must drop in order to generate prof­
its on the long side. Although these conditions may not occur frequently, one prof­
itable situation can more than make up for several losing ones. This is true because 
the initial debit for a bearish calendar spread is small, ½ point in the example above. 
Thus, the losses will be small and the potential profits could be very large if things 
work out right. 
The aggressive spreader must be careful not to "leg out" of his spread, since he 
could generate a large loss by doing so. The object of the strategy is to accept a rather 
large number of small losses, with the idea that the infrequent large profits will more 
than offset the sum of the losses. If one generates a large loss somewhere along the 
way, this may ruin the overall strategy. Also, if the underlying stock should fall to the 
striking price before the near-term put expires, the spread will normally have 
widened enough to produce a small profit; that profit should be taken by closing the 
spread at that time.