Add training workflow, datasets, and runbook

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Chapter 35: Futures Option Strategies for Futures Spreads
Future or Option
January heating oil futures:
January unleaded gasoline futures:
January heating oil 60 call:
January unleaded gas 62 put:
Price
.6550
.5850
6.40
4.25
715
Time Value
Premium
0.90
0.75
The differential in futures prices is .07, or 7 cents per gallon. He thinks it could
grow to 12 cents or so by early winter. However, he also thinks that oil and oil prod­
ucts have the potential to be very volatile, so he considers using the options. One cent
is worth $420 for each of these items.
The time value premium of the options is 1.65 for the put and call combined. If
he pays this amount ($693) per combination, he can still make money if the futures
widen by 5.00 points, as he expects. Moreover, the option spread gives him the
potential for profits if oil products are volatile, even if he is wrong about the futures
relationship.
Therefore, he decides to buy five combinations:
Position
Buy 5 January heating oil 60 calls @ 6.40
Buy 5 January unleaded 62 puts @ 4.25
Total cost:
Cost
$13,440
8,925
$22,365
This initial cost is substantially larger than the initial margin requirement for
five futures spreads, which would be about $7,000. Moreover, the option cost must
be paid for in cash, while the futures requirement could be taken care of with
Treasury bills, which continue to earn money for the spreader. Still, the strategist
believes that the option position has more potential, so he establishes it.
Notice that in this analysis, the strategist compared his time value premium cost
to the profit potential he expected from the futures spread itself This is often a good
way to evaluate whether or not to use options or futures. In this example, he thought
that, even if futures prices remained relatively unchanged, thereby wasting away his
time premium, he could still make money - as long as he was correct about heating
oil outperforming unleaded gasoline.
Some follow-up actions will now be examined. If the futures rally, the position
becomes long. Some profit might have accrued, but the whole position is subject to
losses if the futures fall in price. The strategist can calculate the extent to which his