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OPTION TrAdINg STrATegIeS
Strategy 3b: Long Call (Out-of-the-Money)
exAMPle. Buy August $1,300 gold futures call at a premium of $9.10/oz ($910), with August gold 
futures trading at $1,200/oz. (See Table 35.3b and Figure 35.3b.)
Comment. The buyer of an out-of-the-money call reduces his maximum risk in exchange for accept-
ing a smaller probability that the trade will realize a profit. By definition, the strike price of an out-of-
the-money call is above the current level of futures. In order for the out-of-the-money call position 
to realize a profit, the futures price (as of the time of the option expiration) must exceed the strike 
price by an amount greater than the premium ($9.10/oz in this example). Note that in the out-of-
the-money call position, price increases that leave futures below the option strike price will still result 
in a maximum loss on the option. The long out-of-the-money call might be a particularly appropriate 
position for the trader expecting a large price advance, but also concerned about the possibility of a 
large price decline.
It should be emphasized that the futures price need not necessarily reach the strike price in order 
for the out-of-the-money call to be profitable. If the market rises quickly, the call will increase in 
value and hence can be resold at a profit. (However, this characteristic will not necessarily hold true 
for slow price advances, since the depressant effect of the passage of time on the option premium 
could more than offset the supportive effect of the increased price level of futures.)
For small price changes, the out-of-the-money call will change by less than a factor of one-half for 
each dollar change in the futures price. Thus, for small price changes, each long futures position will 
be equivalent to several long out-of-the-money calls in terms of risk.
tabLe 35.3b profit/Loss Calculations: Long Call (Out-of-the-Money)
(1) (2) (3) (4) (5)
Futures price at 
expiration ($/oz)
premium of august 
$1,300 Call at 
Initiation ($/oz)
$ amount of 
premium paid
Call Value at 
expiration
profit/Loss on 
position [(4) – (3)]
1,000 9.1 $910 $0 –$910
1,050 9.1 $910 $0 –$910
1,100 9.1 $910 $0 –$910
1,150 9.1 $910 $0 –$910
1,200 9.1 $910 $0 –$910
1,250 9.1 $910 $0 –$910
1,300 9.1 $910 $0 –$910
1,350 9.1 $910 $5,000 $4,090
1,400 9.1 $910 $10,000 $9,090