506
A Complete Guide to the Futures mArket
It should be emphasized that the futures price need not necessarily reach the strike price in order 
for the out-of-the-money put to be profitable. If the market declines quickly, the put will increase in 
value, and hence can be resold at a profit. (However, this behavior will not necessarily hold for slow 
price declines, since the depressant effect of the passage of time on the option premium could well 
more than offset the supportive effect of the decreased price level of futures.)
For small price changes, the out-of-the-money put will change by less than a factor of one-half for 
each dollar change in the futures price. Thus, for small price changes, each short futures position will 
be equivalent to several short out-of-the-money puts in terms of risk.
Strategy 5c: Long put (In-the-Money)
example. Buy August $1,300 gold futures put at a premium of $108.70/oz ($10,870), with August 
gold futures trading at $1,200/oz. (See Table 35.5c and Figure 35.5c.)
Comment. In many respects, a long in-the-money put option is very similar to a short futures posi-
tion. The three main differences between these two trading strategies are:
 1. The short futures position will gain slightly more in the event of a price decline—an amount 
equal to the time value portion of the premium paid for the option ($870 in this example).
 2. For moderate price advances, the short futures position will lose slightly less. (Once again, the 
difference will be equal to the time value portion of the premium paid for the option.)
 3. In the event of a large price advance, the loss on the in-the-money long put position would be 
limited to the total option premium paid, while the loss on the short futures position would be 
unlimited.
tabLe 35.5c profit/Loss Calculations: Long put (In-the-Money)
(1) (2) (3) (4) (5)
Futures price at 
expiration ($/oz)
premium of august $1,300 
put at Initiation ($/oz)
Dollar amount 
of premium paid
Value of put 
at expiration
profit/Loss on 
position [(3) – (4)]
1,000 108.7 $10,870 $30,000 $19,130
1,050 108.7 $10,870 $25,000 $14,130
1,100 108.7 $10,870 $20,000 $9,130
1,150 108.7 $10,870 $15,000 $4,130
1,200 108.7 $10,870 $10,000 –$870
1,250 108.7 $10,870 $5,000 –$5,870
1,300 108.7 $10,870 $0 –$10,870
1,350 108.7 $10,870 $0 –$10,870
1,400 108.7 $10,870 $0 –$10,870