Chapter 35: Futures Option Strategies for Futures Spreads 719 
Initial Final Net Profit/ 
Position Price Price Loss 
Bought 5 calls 6.40 0 -$13,440 
Bought 5 puts 4.25 10.00 + 12,075 
Sold 3 heating oil futures .7100 .6400 + 8,820 
Bought 3 unleaded gas futures .5700 .5200 - 6,300 
Total profit: +$ 1,155 
In the final analysis, the fact that the intermarket spread collapsed to zero actu­
ally aided the option strategy, since the puts were the in-the-money option at expira­
tion. This was not planned, of course, but by being long the options, the strategist was 
able to make money when volatility appeared. 
INTRAMARKET SPREAD STRATEGY 
It should be obvious that the same strategy could be applied to an intramarket spread 
as well. If one is thinking of spreading two different soybean futures, for example, he 
could substitute in-the-money options for futures in the position. He would have the 
same attributes as shown for the intermarket spread: large potential profits if volatil­
ity occurs. Of course, he could still make money if the intramarket spread widens, but 
he would lose the time value premium paid for the options. 
SPREADING FUTURES AGAINST STOCK SECTOR INDICES 
This concept can be carried one step further. Many futures contracts are related to 
stocks - usually to a sector of stocks dealing in a particular commodity. For example, 
there are crude oil futures and there is an Oil & Gas Sector Index (XOI). There are 
gold futures and there is a Gold & Silver Index (XAU). If one charts the history of 
the commodity versus the price of the stock sector, he can often find tradeable pat­
terns in terms of the relationship between the two. That relationship can be traded 
via an intermarket spread using options. 
For example, if one thought crude oil was cheap with respect to the price of oil 
stocks in general, he could buy calls on crude oil futures and buy puts on the Oil & 
Gas (XOI) Index. One would have to be certain to determine the number of options 
to trade on each side of the spread, by using the ratio that was presented in Chapter 
31 on inter-index spreading. (In fact, this formula should be used for futures inter­
market spreading if the two underlying futures don't have the same terms.) Only now, 
there is an extra component to add if options are used - the delta of the options: