346 Part Ill: Put Option Strategies 
The bullish portion of this combination of calendar spreads would be set up by sell­
ing the shorter-term January 70 call for 3 points and simultaneously buying the 
longer-term April 70 call for 5 points. This portion of the spread requires a 2-point 
debit. The bearish portion of the spread would be constructed using the puts. The 
near-term January 60 put would be sold for 2 points, while the longer-term April 60 
put would be bought for 3. Thus, the put portion of the spread is a I-point debit. 
Overall, then, the combination of the calendar spreads requires a 3-point debit, plus 
commissions. This debit is the required investment; no additional collateral is 
required. Since there are four options involved, the commission cost will be large. 
Again, establishing the spreads in quantity can reduce the percentage cost of com­
missions. 
Note that all the options involved in this position are initially out-of-the-money. 
The stock is below the striking price of the calls and is above the striking price of the 
puts. One has sold a near-term put and call combination and purchased a longer-term 
combination. For nomenclature purposes, this strategy is called a "calendar combi­
nation." 
There are a variety of possible outcomes from this position. First, it should be 
understood that the risk is limited to the amount of the initial debit, 3 points in this 
example. If the underlying stock should rise dramatically or fall dramatically before 
the near-term options expire, both the call spread and the put spread will shrink to 
nearly nothing. This would be the least desirable result. In actual practice, the spread 
would probably have a small positive differential left even after a premature move by 
the underlying stock, so that the probability of a loss of the entire debit would be 
small. 
If the near-term options both expire worthless, a profit will generally exist at 
that time. 
Example: IfXYZ were still at 65 at January expiration in the prior example, the posi­
tion should be profitable at that time. The January call and put would expire worth­
less with XYZ at 65, and the April options might be worth a total of 5 points. The 
spread could thus be closed for a profit with XYZ at 65 in January, since the April 
options could be sold for 5 points and the initial "cost" of the spread was only 3 points. 
Although commissions would substantially reduce this 2-point gross profit, there 
would still be a good percentage profit on the overall position. If the strategist decides 
to take his profit at this time, he would be operating in a conservative manner. 
However, the strategist may want to be more aggressive and hold onto the April 
combination in hopes that the stock might experience a substantial movement before 
those options expire. Should this occur, the potential profits could be quite large.