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training_data/curated/text/083b10d6a5c2cae50aed106f40b81e6027ebd144fe873a53e83345c83b61a640.txt

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+716 Part V: Index Options and Futures 
+position has become long by using the delta of the options in the strategy. He can 
+then use futures or other options in order to make the position more neutral, if he 
+wants to. 
+Example: Suppose that both unleaded gasoline and heating oil have rallied some and 
+that the futures spread has widened slightly. The following information is known: 
+Future or Option 
+January heating oil futures: 
+January unleaded gasoline futures: 
+January heating oil 60 call: 
+January unleaded gas 62 put: 
+Total profit: 
+Price 
+.7100 
+.6300 
+11.05 
+1.50 
+Net 
+Change 
++ .055 
++ .045 
++ 4.65 
+- 2.75 
+Profit/loss 
++$9,765 
+- 5,775 
++$3,990 
+The futures spread has widened to 8 cents. If the strategist had established the 
+spread with futures, he would now have a one-cent ( $420) profit on five contracts, or 
+a $2,100 profit. The profit is larger in the option strategy. 
+The futures have rallied as well. Heating oil is up 5½ cents from its initial price, 
+while unleaded is up 4½ cents. This rally has been large enough to drive the puts out­
+of-the-money. When one has established the intermarket spread with options, and 
+the futures rally this much, the profit is usually greater from the option spread. Such 
+is the case in this example, as the option spread is ahead by almost $4,000. 
+This example shows the most desirable situation for the strategist who has 
+implemented the option spread. The futures rally enough to force the puts out-of­
+the-money, or alternatively fall far enough to force the calls to be out-of-the-money. 
+If this happens in advance of option expiration, one option will generally have almost 
+all of its time value premium disappear (the calls in the above example). The other 
+option, however, will still have some time value ( the puts in the example). 
+This represents an attractive situation. However, there is a potential negative, 
+and that is that the position is too long now. It is not really a spread anymore. If 
+futures should drop in price, the calls will lose value quickly. The puts will not gain 
+much, though, because they are out-of-the-money and will not adequately protect 
+the calls. At this juncture, the strategist has the choice of taking his profit - closing 
+the position - or making an adjustment to make the spread more neutral once again. 
+He could also do nothing, of course, but a strategist would normally want to protect 
+a profit to some extent.