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+Chapter 34: Futures and Futures Options 691 
+ridiculously far out-of-the-money options, as one is wasting his theoretical advantage 
+if the futures do not have a realistic chance to climb to the striking price of the writ­
+ten options. Finally, do not attempt to use overly large ratios in order to gain the most 
+theoretical advantage. This is an important concept, and the next example illustrates 
+it well. 
+Example: Assume the same pricing pattern for January soybean options that has 
+been the basis for this discussion. January beans are trading at 583. The (novice) 
+strategist sees that the slightly in-the-money January 575 call is the cheapest and the 
+deeply out-of-the-money January 675 call is the most expensive. This can be verified 
+from either of two previous tables: the one showing the actual price as compared to 
+the "theoretical" price, or Table 34-2 showing the implied volatilities. 
+Again, one would use the deltas (see Table 34-2) to create a neutral spread. A 
+neutral ratio of these two would involve selling approximately six calls for each one 
+purchased. 
+Buy 1 January bean 575 call at 191/z 
+Sell 6 January bean 675 calls at 21/4 
+Net position: 
+191/z DB 
+131/z CR 
+6 Debit 
+Figure 34-3 shows the possible detrimental effects of using this large ratio. 
+While one could make 94 points of profit if beans were at 675 at January expiration, 
+he could lose that profit quickly if beans shot on through the upside break-even 
+point, which is only 693.8. The previous formulae can be used to verify these maxi­
+mum profit and upside break-even point calculations. The upside break-even point 
+is too close to the striking price to allow for reasonable follow-up action. Therefore, 
+this would not be an attractive position from a practical viewpoint, even though at 
+first glance it looks attractive theoretically. 
+It would seem that neutral spreading could get one into trouble if it "recom­
+mends" positions like the 6-to-l ratio spread. In reality, it is the strategist who is get­
+ting into trouble if he doesn't look at the whole picture. The statistics are just an aid 
+- a tool. The strategist must use the tools to his advantage. It should be pointed out 
+as well that there is a tool missing from the toolkit at this point. There are statistics 
+that will clearly show the risk of this type of high-rati<,Yspread. In this case, that tool 
+is the gamma of the option. Chapter 40 covers the -Lise of gamma and other more 
+advanced statistical tools. This same example is expanded in that chapter to include 
+the gamma concept.