533
OPTION TrAdINg STrATegIeS
Price of August gold futures at option expiration ($/oz)
Profit/loss at expiration ($)
1,000
10,000
5,000
−5,000
−10,000
0
1,050 1,100 1,150 1,200 1,250
Breakeven price
= $1,122.40
Breakeven price
= $1,277 .60
1,300 1,350 1,400
−15,000
Futures price at time
of position initiation
    FIGURE   35.17    Profi  t/loss Profi  le: ratio Call Write—long Futures + Short 2 Calls (Similar to 
Short Straddle) 
Comment.  The combination of 1 long futures contract and 2 short at-the-money calls is a balanced 
position in terms of delta values. In other words, at any given point in time, the gain or loss in the 
long futures contract due to small price changes (i.e., price changes in the vicinity of the strike price) 
will be approximately off  set by an opposite change in the call position. (Over time, however, a mar-
ket characterized by small price changes will result in the long futures position gaining on the short 
call position due to the evaporation of the time value of the options.) The maximum profi  t in this 
strategy will be equal to the premium received for the 2 calls and will occur when prices are exactly 
unchanged. This strategy will show a net profi  t for a wide range of prices centered at the prevailing 
price level at the time the position was initiated. However, the position will imply unlimited risk in 
the event of very sharp price increases or declines. 
 The profi  t/loss profi  le for this strategy should look familiar—it is virtually identical to the short 
straddle position (see Strategy  35.8).  The virtual equivalence of this strategy to the short straddle 
position follows directly from the previously discussed structure of a synthetic futures position:
Ratio call wr itel ong f utures short   calls
=+ 2
 However, from the synthetic futures position relationship, we know that:
 Long f utures long call short put ≈+