Let say I’m nursing a loss in 100 Disney shares at 160.
I sell 1 contract C125 expiry May at $1.35 and buy 2 contract C135 expiry May at 0.55, amounting to $1.10, with a net credit of $0.25.
This is with the view that Disney may outperform the broad market in the coming weeks. If it doesn’t, I still have a income of $0.25.