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A Complete Guide to the Futures mArket
Strategy 20b: bull put Money Spread (Long put with Lower Strike 
price/Short put with higher Strike price)—Case 2
example. Buy an August $1,100 gold futures put at a premium of $10.10/oz ($1,010) and simul-
taneously sell an August $1,200 put at a premium of $38.70/oz ($3,870), with August gold futures 
trading at $1,200/oz. (See Table 35.20b and Figure 35.20b.)
Comment. In contrast to Case 1, which involved two in-the-money puts, this strategy is based on 
a long out-of-the-money put versus a short at-the-money put spread. In a sense, this strategy can 
be viewed as a short at-the-money put position with a built-in stop. (The purchase of the out-of-
the-money put serves to limit the maximum possible loss in the event of a large price decline.) This 
risk limitation is achieved at the expense of a reduction in the net premium received. This trade-off  
between risk exposure and the amount of premium received is illustrated in Figure 35.20b, which 
compares the outright short at-the-money put position to this spread strategy.
Strategy 21: bear put Money Spread (Short put with Lower Strike 
price/Long put with higher Strike price)
example. Sell an August $1,100 gold futures put at a premium of $10.10/oz ($1,010) and simul-
taneously buy an August $1,150 put at a premium of $19.90/oz ($1,990), with August gold futures 
trading at $1,200/oz. (See Table 35.21 and Figure 35.21.)
Comment. This is a debit bear spread using puts instead of calls. The maximum risk is equal to the 
difference between the premium paid for the long put and the premium received for the short put. The  
maximum gain equals the difference between the two strike prices minus the difference between  
the premiums. The maximum loss will occur if prices fail to decline to at least the higher strike price. 
The maximum gain will be achieved if prices decline to the lower strike price. The profit/loss profile of 
this spread is approximately equivalent to the profile of the bear call money spread (see Figure 35.19a).
tabLe 35.20b  profit/Loss Calculations: bull put Money Spread (Long put with Lower Strike price/Short put 
with higher Strike price); Case 2—Long Out-of-the-Money put/Short at-the-Money put
(1) (2) (3) (4) (5) (6) (7) (8)
Futures price 
at expiration 
($/oz)
premium of 
august $1,100 
put ($/oz)
Dollar 
amount of 
premium paid
premium of 
august $1,200 
put ($/oz)
Dollar amount 
of premium 
received
Value of 
$1,100 put at 
expiration
Value of 
$1,200 put at 
expiration
profit/Loss on 
position  
[(5) − (3) + (6) − (7)]
1,000 10.1 $1,010 38.7 $3,870 $10,000 $20,000 –$7,140
1,050 10.1 $1,010 38.7 $3,870 $5,000 $15,000 –$7,140
1,100 10.1 $1,010 38.7 $3,870 $0 $10,000 –$7,140
1,150 10.1 $1,010 38.7 $3,870 $0 $5,000 –$2,140
1,200 10.1 $1,010 38.7 $3,870 $0 $0 $2,860
1,250 10.1 $1,010 38.7 $3,870 $0 $0 $2,860
1,300 10.1 $1,010 38.7 $3,870 $0 $0 $2,860
1,350 10.1 $1,010 38.7 $3,870 $0 $0 $2,860
1,400 10.1 $1,010 38.7 $3,870 $0 $0 $2,860