524A COMPleTe gUIde TO THe FUTUreS MArKeT
 In most cases, the trader who fi  nds the profi  t/loss profi  le of this strategy attractive would be better 
off   buying a put, because the transaction costs are likely to be lower. However, if the trader already 
holds a short futures position, buying a call may be a reasonable alternative to liquidating this position 
and buying a put.   
 Strategy 12b: Option-protected Short Futures (Short Futures + Long 
Out-of-the-Money Call) 
example . Sell August gold futures at $1,200/oz and simultaneously buy an August $1,300 gold 
futures call at a premium of $9.10/oz ($910). (See Table   35.12   b and Figure   35.12   b.)   
Comment.  As can be verifi  ed by comparing Figure   35.12  b to Figure   35.5  c, this strategy is virtually 
equivalent to buying an in-the-money put. Supplementing a short futures position with the purchase 
of an out-of-the-money call will result in slightly poorer results if the market declines or advances 
moderately, but will limit the magnitude of losses in the event of a sharp price advance. Thus, much 
as with the long in-the-money put position, this strategy can be viewed as a short position with a 
built-in stop. 
Price of August gold futures at option expiration ($/oz)
Futures price at time
of position initiation
and strike priceBreakeven price = $1,161.20
Profit/loss at expiration ($)
1,000
10,000
17,500
15,000
12,500
7,500
5,000
2,500
−5,000
−2,500
0
1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
    FIGURE   35.12a    Profi  t/loss Profi  le: Option-Protected Short Futures—Short Futures + long 
At-the-Money Call (Similar to long At-the-Money Put)