356 Part Ill: Put Option Strategies 
while. That is, one would not actually make investments, but would instead follow 
prices in the newspaper and make day-to-day decisions without actual risk. This will 
allow the inexperienced strategist to gain a feel for how these complex strategies per­
form over a particular time period. The astute investor can, of course, obtain price 
history information and track a number of market cycles in this same way. 
SUMMARY 
Puts and call can be combined to make some very attractive positions. The addition 
of a call or put credit spread to the outright purchase of a put or call can enhance the 
overall profitability of the position, especially if the options are expensive. In addi­
tion, three advanced strategies were presented that combined puts and calls at vari­
ous expiration dates. These three various types of strategies that involve calendar 
combinations of puts and calls may all be attractive. One should be especially alert 
for these types of positions when near-term calls are overpriced. Typically, this would 
be during, or just after, a bullish period in the stock market. For nomenclature pur­
poses, these three strategies are called the "calendar combination," the "calendar 
straddle," and the "diagonal butterfly." 
All three strategies offer the possibility of large potential profits if the underly­
ing stock remains relatively stable until the near-term options expire. In addition, all 
three strategies have limited risk, even if the underlying stock should move explo­
sively in either direction prior to near-term expiration. If an intermediate result 
occurs - for example, the stock moves a moderate distance in either direction before 
near-term expiration - it is still possible to realize a limited profit in any of the strate­
gies, because of the fact that the time premiums decay much more rapidly in the 
near-term options than they do in the longer-term options. 
The three strategies have many things in common, but each has its own advan­
tages and disadvantages. The "diagonal butterfly" is the only one of the three strate­
gies whereby the strategist has a possibility of owning free options. Admittedly, the 
probability of actually being able to own the options completely for free is small. 
However, there is a relatively large probability that one can substantially reduce the 
cost of the long options. The "calendar combination," the first of the three strategies 
discussed, offers the largest probability of capturing the entire near-term premium. 
This is because both near-term options are out-of-the-money to begin with. The "cal­
endar straddle" offers the largest potential profits at near-term expiration. That is, if 
the stock is relatively unchanged from the time the position was established until the 
time the near-term options expire, the "calendar straddle" will show the best profit 
of the three strategies at that time.