504A COMPleTe gUIde TO THe FUTUreS MArKeT
Comment.  The long put is a bearish strategy in which maximum risk is limited to the premium paid 
for the option, while maximum gain is theoretically unlimited. However, the probability of a loss is 
greater than the probability of a gain, since the futures price must decline by an amount exceeding 
the option premium (as of the option expiration) in order for the put buyer to realize a profi  t. Two 
specifi  c characteristics of the at-the-money option are: 
   1.  The maximum loss will be realized only if futures are trading at or above their current level at 
the time of the option expiration. 
   2.  For small price changes, each $1 change in the futures price will result in approximately a $0.50 
change in the option price (except for options near expiration). Thus, for small price changes, a 
net short futures position is equivalent to approximately 2 put options in terms of risk.     
 Strategy  5 b: Long put (Out-of-the-Money) 
example . Buy August  $1,100  gold futures put at a premium of  $10.10 /oz  ($1,010).  (The current 
price of August gold futures is $1,200/oz.) (See Table   35.5   b and Figure   35.5  b.)  
Comment.  The buyer of an out-of-the-money put reduces his maximum risk in exchange for accept-
ing a smaller probability that the trade will realize a profi  t. By defi  nition, the strike price of an out-of-
the-money put is below the current level of futures. In order for the out-of-the-money put position 
Price of August gold futures at option expiration ($/oz)
Futures price at time
of position initiation
and strike price
Breakeven price = $1,161.30
Profit/loss at expiration ($)
1,000
10,000
7,500
−5,000
5,000
−2,500
2,500
0
17,500
15,000
12,500
1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
    FIGURE   35.5a    Profi  t/loss Profi  le: long Put (At-the-Money)