180 Part II: Call Option Strategies 
the overall increase in risk is small - the amount paid to repurchase the short call. If 
he attempts to "leg" out of the spread in such a manner, the spreader should not 
attempt to buy back the short call at too high a price. If it can be repurchased at 1/s 
or 1/16, the spreader will be giving away virtually nothing by buying back the short call. 
However, he should not be quick to repurchase it if it still has much more value than 
that, unless he is closing out the entire spread. At no time should one attempt to "leg" 
out after a stock price increase, taking the profit on the long side and hoping for a 
stock price decline to make the short side profitable as well. The risk is too great. 
Many traders find themselves in the somewhat perplexing situation of having 
seen the underlying make a large, quick move, only to find that their spread has not 
widened out much. They often try to figure out a way to perhaps lock in some gains 
in case the underlying subsequently drops in price, but they want to be able to wait 
around for the spread to widen out more toward its maximum profit potential. There 
really isn't any hedge that can accomplish all of these things. The only position that 
can lock in the profits in a call bull spread is to purchase the accompanying put bear 
spread. This strategy is discussed in Chapter 23, Spreads Combining Calls and Puts. 
OTHER USES OF BULL SPREADS 
Superficially, the bull spread is one of the simplest forms of spreading. However, it 
can be an extremely useful tool in a wide variety of situations. Two such situations 
were described in Chapter 3. If the outright purchaser of a call finds himself with an 
unrealized loss, he may be able to substantially improve his chances of getting out 
even by "rolling down" into a bull spread. If, however, he has an unrealized profit, he 
may be able to sell a call at the next higher strike, creating a bull spread, in an attempt 
to lock in some of his profit. 
In a somewhat similar manner, a common stockholder who is faced with an 
unrealized loss may be able to utilize a bull spread to lower the price at which he 
can break even. He may often have a significantly better chance of breaking even or 
making a profit by using options. The following example illustrates the stockholder's 
strategy. 
Example: An investor buys 100 shares of XYZ at 48, and later finds himself with an 
unrealized loss with the stock at 42. A 6-point rally in the stock would be necessary 
in order to break even. However, if XYZ has listed options trading, he may be able to 
significantly reduce his break-even price. The prices are: