Chapter 23: Spreads Combining Calls and Puts 
FIGURE 23-1. 
Call buy and put credit (bull) spread. 
+$2,000 
+$1,000 
(/J 
(/J 
0 ..J 
0 $0 -e a. 
-$1,000 
-$2,000 
70 80 
.... ,, -----,, -=-----' 
THE BEARISH SCENARIO 
~ Spread at Expiration 
Call Buy Only, at Expiration 
341 
Stock 
In a similar manner, one can construct a position to take advantage of a bearish opin­
ion on a stock. Again, this would be most useful when the options were overpriced 
and one felt that an at-the-money put was too expensive to purchase by itself. 
Example: XYZ is trading at 80, and one has a definite bearish opinion on the stock. 
However, the December 80 put, which is selling for 8, is expensive according to an 
option analysis. Therefore, one might consider selling a call credit spread (out-of-the­
money) to help reduce the cost of the put. The entire position would thus be: 
Buy 1 December 80 put: 
Sell l December 90 call: 
Buy 1 December 100 call: 
Total cost: 
8 debit 
4 credit 
2 debit 
6 debit ($600) 
The profitability of this position is shown in Figure 23-2. The straight line on that 
graph shows how the position would behave at expiration. The introduction of the 
call credit spread has increased the risk to $1,600 if the stock should rally to 100 or 
higher by expiration. Note that the risk is limited since both the put purchase and the 
call credit spread are limited-risk strategies. The margin required would be this max­
imum risk, or $1,600.