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A Complete Guide to the Futures mArket
Table 35.3d summarizes the profit/loss implications of various long call positions for a range of 
price assumptions. Note that as calls move deeper in-the-money, their profit and loss characteristics 
increasingly resemble a long futures position. The very deep in-the-money $1,050 call provides 
an interesting apparent paradox: The profit/loss characteristics of this option are nearly the same 
as those of a long futures position for all prices above $1,050, but the option has the advantage of 
limited risk for lower prices. How can this be? Why wouldn’t all traders prefer the long $1,050 
call to the long futures position and, therefore, bid up its price so that its premium also reflected 
more time value? (The indicated premium of $15,520 for the $1,050 call consists almost entirely 
of intrinsic value.)
There are two plausible explanations to this apparent paradox. First, the option price reflects 
the market’s assessment that there is a very low probability of gold prices moving to this deep in-
the-money strike price, and therefore the market places a low value on the time premium. In other 
words, the market places a low value on the loss protection provided by an option with a strike price 
so far below the market. Second, the $1,050 call represents a fairly illiquid option position, and the 
quoted price does not reflect the bid/ask spread. No doubt, a potential buyer of the call would have 
had to pay a higher price than the quoted premium in order to assure an execution.
tabLe 35.3d profit/Loss Matrix for Long Calls with Different Strike prices
Dollar amount of premiums paid
$1,050 $1,100 $1,150 $1,200 $1,250 $1,300 $1,350
Call Call a Call Call a Call Call a Call
$15,520 $11,010 $7,010 $3,880 $1,920 $910 $450
position profit/Loss at expiration
Futures price at 
expiration ($/oz)
Long 
Futures 
at $1,200
In-the-Money at-the-Money Out-of-the-Money
$1,050
Call
$1,100
Calla
$1,150
Call
$1,200
Calla
$1,250
Call
$1,300
Calla
$1,350
Call
1,000 –$20,000 –$15,520 –$11,010 –$7,010 –$3,880 –$1,920 –$910 –$450
1,050 –$15,000 –$15,520 –$11,010 –$7,010 –$3,880 –$1,920 –$910 –$450
1,100 –$10,000 –$10,520 –$11,010 –$7,010 –$3,880 –$1,920 –$910 –$450
1,150 –$5,000 –$5,520 –$6,010 –$7,010 –$3,880 –$1,920 –$910 –$450
1,200 $0 –$520 –$1,010 –$2,010 –$3,880 –$1,920 –$910 –$450
1,250 $5,000 $4,480 $3,990 $2,990 $1,120 –$1,920 –$910 –$450
1,300 $10,000 $9,480 $8,990 $7,990 $6,120 $3,080 –$910 –$450
1,350 $15,000 $14,480 $13,990 $12,990 $11,120 $8,080 $4,090 –$450
1,400 $20,000 $19,480 $18,990 $17,990 $16,120 $13,080 $9,090 $4,550
aThese calls are compared in Figure 35.3d.