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A Complete Guide to the Futures mArket
Thus:
Ratio call writ el ong c all short put short  c alls or
Rati
  ≈+ + 2,
oo call wr ite short put short  call≈+
The right-hand term of this last equation is, in fact, the definition of a short straddle. In similar 
fashion, it can be demonstrated that a short put write (short futures + short 2 puts) would also yield 
a profit/loss profile nearly identical to the short straddle position.
Strategy 18: bull Call Money Spread (Long Call with Lower Strike 
price/Short Call with higher Strike price)
example. Buy an August $1,250 gold futures call at a premium of $19.20/oz ($1,920) and 
simultaneously sell an August $1,300 call at a premium of $9.10 ($910). (See Table 35.18 and 
Figure 35.18.)
Comment. This type of spread position is also called a debit spread because the amount of premium 
paid for the long call is greater than the amount of the premium received for the short call. The maxi-
mum risk in this type of trade is equal to the difference between these two premiums. The maximum 
possible gain in this spread will be equal to the difference between the two strike prices minus the 
net difference between the two premiums. The maximum loss will occur if prices fail to rise at least 
beyond the lowest strike price. The maximum gain will be realized if prices rise above the higher 
strike price. Note that although the maximum profit exceeds the maximum risk by a factor of nearly 
4 to 1, the probability of a loss is significantly greater than the probability of a gain. This condition is 
true since prices must rise $60.10/oz before the strategy proves profitable.
tabLe 35.18  profit/Loss Calculations: bull Call Money Spread (Long Call with Lower Strike price/
Short Call with higher Strike price)
(1) (2) (3) (4) (5) (6) (7) (8)
Futures price 
at expiration 
($/oz)
premium of 
august $1,250 
Call ($/oz)
$ amount 
of premium 
paid
premium of 
august $1,300 
Call ($/oz)
Dollar amount 
of premium 
received
$1,250 Call 
Value at 
expiration
$1,300 Call 
Value at 
expiration
profit/Loss on 
position 
[(5) − (3) + (6) − (7)]
1,000 19.2 $1,920 9.1 $910 $0 $0 -$1,010
1,050 19.2 $1,920 9.1 $910 $0 $0 -$1,010
1,100 19.2 $1,920 9.1 $910 $0 $0 -$1,010
1,150 19.2 $1,920 9.1 $910 $0 $0 -$1,010
1,200 19.2 $1,920 9.1 $910 $0 $0 -$1,010
1,250 19.2 $1,920 9.1 $910 $0 $0 -$1,010
1,300 19.2 $1,920 9.1 $910 $5,000 $0 $3,990
1,350 19.2 $1,920 9.1 $910 $10,000 $5,000 $3,990
1,400 19.2 $1,920 9.1 $910 $15,000 $10,000 $3,990