716 Part V: Index Options and Futures 
position has become long by using the delta of the options in the strategy. He can 
then use futures or other options in order to make the position more neutral, if he 
wants to. 
Example: Suppose that both unleaded gasoline and heating oil have rallied some and 
that the futures spread has widened slightly. The following information is known: 
Future or Option 
January heating oil futures: 
January unleaded gasoline futures: 
January heating oil 60 call: 
January unleaded gas 62 put: 
Total profit: 
Price 
.7100 
.6300 
11.05 
1.50 
Net 
Change 
+ .055 
+ .045 
+ 4.65 
- 2.75 
Profit/loss 
+$9,765 
- 5,775 
+$3,990 
The futures spread has widened to 8 cents. If the strategist had established the 
spread with futures, he would now have a one-cent ( $420) profit on five contracts, or 
a $2,100 profit. The profit is larger in the option strategy. 
The futures have rallied as well. Heating oil is up 5½ cents from its initial price, 
while unleaded is up 4½ cents. This rally has been large enough to drive the puts out­
of-the-money. When one has established the intermarket spread with options, and 
the futures rally this much, the profit is usually greater from the option spread. Such 
is the case in this example, as the option spread is ahead by almost $4,000. 
This example shows the most desirable situation for the strategist who has 
implemented the option spread. The futures rally enough to force the puts out-of­
the-money, or alternatively fall far enough to force the calls to be out-of-the-money. 
If this happens in advance of option expiration, one option will generally have almost 
all of its time value premium disappear (the calls in the above example). The other 
option, however, will still have some time value ( the puts in the example). 
This represents an attractive situation. However, there is a potential negative, 
and that is that the position is too long now. It is not really a spread anymore. If 
futures should drop in price, the calls will lose value quickly. The puts will not gain 
much, though, because they are out-of-the-money and will not adequately protect 
the calls. At this juncture, the strategist has the choice of taking his profit - closing 
the position - or making an adjustment to make the spread more neutral once again. 
He could also do nothing, of course, but a strategist would normally want to protect 
a profit to some extent.