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A Complete Guide to the Futures mArket
position. Whereas the short at-the-money put position reflects an expectation that prices will either 
rise or decline only slightly, the short out-of-the-money put merely reflects an expectation that prices 
will not decline sharply.
Strategy 6c: Short put (In-the-Money)
example. Sell August $1,300 gold futures put at a premium of $108.70/oz ($10,870), with August 
gold futures trading at $1,200/oz. (See Table 35.6c and Figure 35.6c.)
Comment. For most of the probable price range, the profit/loss characteristics of the short in-the-
money put are fairly similar to those of the outright long futures position. There are three basic dif-
ferences between these two positions:
 1. The short in-the-money put will lose modestly less than the long futures position in a 
declining market because the loss will be partially offset by the premium received for 
the put.
 2. The short in-the-money put will gain modestly more than the long futures position in a moder-
ately advancing market.
 3. In a very sharply advancing market, the profit potential on a long futures position is open-ended, 
whereas the maximum gain in the short in-the-money put position is limited to the total pre-
mium received for the put.
In effect, the seller of an in-the-money put chooses to lock in modestly better results for the 
probable price range in exchange for surrendering the opportunity for windfall profits in the 
event of a price explosion. 
generally speaking, a trader should only choose a short in-the-money 
put over a long futures position if he believes that the probability of a sharp price advance is 
extremely small.
tabLe 35.6c profit/Loss Calculations: Short put (In-the-Money)
(1) (2) (3) (4) (5)
Futures price at 
expiration ($/oz)
premium of august $1,300 
put at Initiation ($/oz)
Dollar amount of 
premium received
put Value 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