507
OPTION TrAdINg STrATegIeS
 In a sense, the long in-the-money put position can be thought of as a short futures position with 
a built-in stop. This characteristic is an especially important consideration for speculators who 
typically employ protective stop loss orders on their positions—a prudent trading approach. A 
trader using a protective buy stop on a short position faces the frustrating possibility of the market 
advancing suffi   ciently to activate his stop and subsequently breaking. The long in-the-money put 
position off  ers the speculator an alternative method of limiting risk that does not present this 
danger. Of course, this benefi  t does not come without a cost: as mentioned earlier, the buyer of an 
in-the-money put will gain slightly less than the outright short futures trader if the market declines 
and lose slightly more if the market advances  moderately.  However, if the trader is anticipating 
volatile market conditions, he might very well prefer a long in-the-money put position to a short 
futures position combined with a protective buy stop order. In any case, the key point is that the 
trader who routinely compares the strategies of buying an in-the-money put versus going short 
futures with a protective buy stop should enjoy an advantage over those traders who never consider 
the option-based alternative. 
 Table   35.5   d summarizes the profi  t/loss implications of various long put positions for a range of 
price assumptions. Note that as puts move deeper in-the-money, their profi  t and loss characteristics 
increasingly resemble a short futures position.  
    FIGURE   35.5c    Profi  t/loss Profi  le: long Put (In-the-Money) 
Price of August gold futures at option expiration ($/oz)
Futures
price at time
of position
initiation
Strike price
Breakeven price
= $1,191.30
Profit/loss at expiration ($)
1,000
10,000
−10,000
−15,000
5,000
−5,000
0
15,000
20,000
1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400