682 Part V: Index Options and Futures 
The real value in being able to use the options when a future is locked limit up 
or limit down, of course, is to be able to hedge one's position. Simplistically, if a trad­
er came in long the August soybean futures and they were locked limit down as in 
the example above, he could use the puts and calls to effectively close out his posi­
tion. 
Example: As before, August soybeans are at 620, locked down the limit of 30 cents. 
A trader has come into this trading day long the futures and he is very worried. He 
cannot liquidate his long position, and if soybeans should open down the limit again 
tomorrow, his account will be wiped out. He can use the August options to close out 
his position. 
Recall that it has been shown that the following is true: 
Long put + Short call is equivalent to short stock. 
It is also equivalent to short futures, of course. So if this trader were to buy a 
put and short a call at the same strike, then he would have the equivalent of a short 
futures position to offset his long futures position. 
Using the following prices, which are the same as before, one can see how his 
risk is limited to the effective futures price of 613. That is, buying the put and selling 
the call is the same as selling his futures out at 613, down 37 cents on the trading day. 
Current prices: 
Option 
August 625 call 
August 625 put 
Position: 
Buy August 625 put for 19 
Sell August 625 call for 31 
August Futures 
at Option 
Expiration Put Price 
575 50 
600 25 
613 12 
625 0 
650 0 
Put 
P/L 
+ $1,900 
600 
- 1,900 
- 3,100 
3,100 
Last Sale 
Price 
19 
31 
Call Price 
0 
0 
0 
0 
25 
Call 
P/L 
+$1,900 
+ 1,900 
+ 1,900 
+ 1,900 
600 
Net Change 
for the Day 
-21 
+16 
Net Profit 
or loss on 
Position 
+$3,800 
+ 1,300 
0 
- 1,200 
- 3,700