36 lines
2.3 KiB
Plaintext
36 lines
2.3 KiB
Plaintext
494A COMPleTe gUIde TO THe FUTUreS MArKeT
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FIGURE 35.3b Profi t/loss Profi le: long Call (Out-of-the-Money)
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Price of August gold futures at option expiration ($/oz)
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Futures price at time
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of position initiation Strike price
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Breakeven price
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= $1,309.10
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Profit/loss at expiration ($)
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1,000
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10,000
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5,000
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7 ,500
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2,500
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−2,500
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0
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1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400
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Strategy 3c: Long Call (In-the-Money)
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example . Buy August $1,100 gold futures call at a premium of $110.10 /oz ($11,010), with August
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gold futures trading at $1,200/oz. (See Table 35.3 c and Figure 35.3 c.)
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Comment. In many respects, a long in-the-money call position is very similar to a long futures posi-
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tion. The three main diff erences between these two trading strategies are:
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1. The long futures position will gain slightly more in the event of a price rise—an amount equal
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to the time value portion of the premium paid for the option ($1,010 in the above example).
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2. For moderate price declines, the long futures position will lose slightly less. (Once again, the
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diff erence will be equal to the time value portion of the premium paid for the option.)
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3. In the event of a large price decline, the loss on the in-the-money long call position would be lim-
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ited to the total option premium paid, while the loss on the long futures position will be unlimited.
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In a sense, the long in-the-money call position can be thought of as a long futures position with a
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built-in stop. This characteristic is an especially important consideration for speculators who typically
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employ protective stop-loss orders on their positions—a prudent trading approach. A trader using a
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protective sell stop on a long position faces the frustrating possibility of the market declining suffi ciently
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to activate his stop and subsequently rebounding. The long in-the-money call position off ers the spec-
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ulator an alternative method of limiting risk that does not present this danger. Of course, this benefi t
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does not come without a cost; as mentioned above, the buyer of an in-the-money call will gain slightly
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less than the outright futures trader if the market advances, and will lose slightly more if the market
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declines moderately. However, if the trader is anticipating volatile market conditions, he might very |