494A COMPleTe gUIde TO THe FUTUreS MArKeT
    FIGURE   35.3b    Profi  t/loss Profi  le: long Call (Out-of-the-Money) 
Price of August gold futures at option expiration ($/oz)
Futures price at time
of position initiation Strike price
Breakeven price
= $1,309.10
Profit/loss at expiration ($)
1,000
10,000
5,000
7 ,500
2,500
−2,500
0
1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
 Strategy 3c: Long Call (In-the-Money) 
example . Buy August  $1,100  gold futures call at a premium of  $110.10 /oz  ($11,010),  with August 
gold futures trading at $1,200/oz. (See Table   35.3   c and Figure   35.3  c.)  
Comment.  In many respects, a long in-the-money call position is very similar to a long futures posi-
tion. The three main diff  erences between these two trading strategies are: 
   1.  The long futures position will gain slightly more in the event of a price rise—an amount equal 
to the time value portion of the premium paid for the option ($1,010 in the above example). 
   2.  For moderate price declines, the long futures position will lose slightly less. (Once again, the 
diff  erence will be equal to the time value portion of the premium paid for the option.) 
   3.  In the event of a large price decline, the loss on the in-the-money long call position would be lim-
ited to the total option premium paid, while the loss on the long futures position will be unlimited.   
 In a sense, the long in-the-money call position can be thought of as a long 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 sell stop on a long position faces the frustrating possibility of the market declining suffi   ciently 
to activate his stop and subsequently rebounding. The long in-the-money call position off  ers the spec-
ulator 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 above, the buyer of an in-the-money call will gain slightly 
less than the outright futures trader if the market advances, and will lose slightly more if the market 
declines  moderately.  However, if the trader is anticipating volatile market conditions, he might very