513
OPTION TrAdINg STrATegIeS
 Table   35.6   d summarizes the profi  t/loss results for various short put positions for a range of price 
assumptions. As can be seen, as puts move more deeply in the money, they begin to more closely 
resemble a long futures position. (As previously explained in the case of calls, sellers of deep in-the-
money options should be cognizant of the real possibility of early exercise.) Short positions in deep 
out-of-the-money puts will prove profi  table for the vast range of prices, but the maximum gain is 
small and the theoretical maximum loss is unlimited.  
 Figure   35.6  d compares each type of short put to a long futures position. The short at-the-money 
put position will be the most profi  table strategy under stable market conditions and the middle-of-
the-road strategy (relative to the other two types of puts) in declining and rising markets. The short 
out-of-the-money put will lose the least in a declining market, but it will also be the least profi  table 
strategy if prices advance. The short in-the-money put is the type of put that has the greatest potential 
and risk and, as mentioned above, there is a strong resemblance between this strategy and an outright 
long position in futures. 
 It should be emphasized that the comparisons in Figure   35.6  d are based upon single-unit positions. 
However, as previously explained, these alternative strategies do not represent equivalent position 
sizes. Comparisons based on positions weighted equally in terms of some risk measure (e.g., equal 
delta values) would yield diff  erent empirical conclusions.   
    FIGURE   35.6c    Profi  t/loss Profi  le: Short Put (In-the-Money) 
Price of August gold futures at option expiration ($/oz)
Futures price
at time of
position initiation
Breakeven price
=$1,191.30
Profit/loss at expiration ($)
1,000
10,000
15,000
−10,000
5,000
−5,000
−15,000
−20,000
0
1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
Strike price