510A COMPleTe gUIde TO THe FUTUreS MArKeT
Comment.  The short put is a bullish position with a maximum potential gain equal to the premium 
received for selling the put and unlimited risk. However, in return for assuming this unattractive 
maximum reward/maximum risk relationship, the seller of a put enjoys a greater probability of real-
izing a profi  t than a loss. Note that the short at-the-money put position will result in a gain as long as 
the futures price at the time of the option expiration is not below the futures price at the time of the 
option initiation by an amount greater than the premium level ($38.70/oz in our example). However, 
the maximum possible profi  t (i.e., the premium received on the option) will only be realized if the 
futures price at the time of the option expiration is above the prevailing market price at the time the 
option was sold (i.e., the strike price). The short put position is appropriate if the trader is  modestly
bullish and views the probability of a large price decline as being very low . If, however, the trader 
anticipated a large price advance, he would probably be better off   buying a call or going long futures.   
 Strategy 6b: Short put (Out-of-the-Money) 
example . Sell August  $1,100  gold futures put at a premium of  $10.10 /oz  ($1,010),  with August gold 
futures trading at $1,200/oz. (See Table   35.6   b and Figure   35.6  b .)   
Comment.  The seller of an out-of-the-money put is willing to accept a smaller maximum gain (i.e., 
premium) in exchange for increasing the probability of gain on the trade. The seller of an out-of-the-
money put will retain the full premium received as long as the futures price does not decline by an 
    FIGURE   35.6a    Profi  t/loss Profi  le: Short Put (At-the-Money) 
Price of August gold futures at option expiration ($/oz)
Futures price at time
of position initiation
and strike price
Breakeven price
= $1,161.30
Profit/loss at expiration ($)
1,000
−10,000
−12,500
5,000
2,500
−2,500
−5,000
−7,500
0
−15,000
−17,500
1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400