501
OPTION TrAdINg STrATegIeS
Comment.  For most of the probable price range, the profi  t/loss characteristics of the short in-the-
money call are fairly similar to those of the outright short futures position. There are three basic dif-
ferences between these two positions: 
   1.  The short in-the-money call will lose modestly less than the short futures position in 
an advancing market because the loss will be partially off  set by the premium received for 
the call. 
   2.  The short in-the-money call will gain modestly more than the short futures position in a mod-
erately declining market. 
   3.  In a very sharply declining market, the profi  t potential on a short futures position is open-ended, 
whereas the maximum gain in the short in-the-money call position is limited to the total pre-
mium received for the call.   
 In eff  ect, the seller of an in-the-money call chooses to lock in modestly better results for the prob-
able price range in exchange for surrendering the opportunity for windfall profi  ts in the event of a 
price collapse. generally speaking, a trader should only choose a short in-the-money call over a short 
futures position if he believes that the probability of a sharp price decline is extremely small. 
 Table   35.4   d summarizes the profi  t/loss results for various short call positions for a range of 
price assumptions. As can be seen, as calls move more deeply in-the-money, they begin to resemble 
    FIGURE   35.4c    Profi  t/loss Profi  le: Short Call (In-the-Money)
Chart created using TradeStation. ©TradeStation T echnologies, Inc. All rights reserved. 
Price of August gold futures at option expiration ($/oz)
Futures price at
time of position
initiation
Strike price
Breakeven price
= $1210.10
Profit/loss at expiration ($)
1,000
10,000
15,000
−10,000
5,000
−5,000
0
−20,000
−15,000
1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400