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training_data/curated/text/9b1af08add58564c4005ec51c91c5f050383863b3206dca1ce77520da4998499.txt

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+520A COMPleTe gUIde TO THe FUTUreS MArKeT
+ Strategy 11a: Option-protected Long Futures (Long Futures + Long 
+at-the-Money put) 
+example . Buy August gold futures at $1,200/oz and simultaneously buy an August $1200 gold put at 
+a premium of $38.70/oz ($3,870). (See Table   35.11   a and Figure   35.11   a.)   
+Comment.  A frequently recommended strategy is that the trader implementing (or holding) a long 
+futures position can consider buying a put to protect his downside risk. The basic idea is that if the 
+market declines, the losses in the long futures position will be off  set dollar for dollar by the long put 
+position. Although this premise is true, it should be stressed that such a combined position represents 
+nothing more than a proxy for a long call. The reader can verify the virtually identical nature of these 
+two alternative strategies by comparing Figure   35.11  a to Figure   35.3  a. If prices increase, the long 
+futures position will gain, while the option will expire worthless. On the other hand, if prices decline, 
+the loss in the combined position will equal the premium paid for the put. In fact, if the call and put 
+premiums are equal, a long futures plus long put position will be precisely equivalent to a long call. 
+ In most cases, the trader who fi  nds the profi  t/loss profi  le of this strategy attractive would be better 
+off   buying a call, because the transaction costs are likely to be lower. However, if the trader already 
+holds a long futures position, buying a put may be a reasonable alternative to liquidating this position 
+and buying a call.   
+Price of August gold futures at option expiration ($/oz)
+Futures price at
+time of position
+initiation and
+strike price
+Breakeven price = $1,180.65
+Profit/loss at expiration ($)
+1,000
+37,500
+50,000
+25,000
+−25,000
+−37,500
+12,500
+−12,500
+0
+1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
+Short 2 futures
+Short futures + long put
+    FIGURE   35.10    Profi  t/loss Profi  le: Bearish “T exas Option Hedge” (Short Futures + long Put)