Long At-the-Money Call
A long at-the-money call gives the holder the right, but not the obligation, to buy futures at a specific price for a specific period of time. For example, $20 per barrel for crude oil or $260 per ounce for gold.
The position profits if futures prices rally. Profits are unlimited on the upside; total risk is limited to the premium paid regardless of where futures trade. This trade is helped by increasing volatility, while the passage of time works against it. Hedgers of the underlying commodity can use buy-call strategies to lock in purchase prices and still participate in a price decline. This is known as a "cap."
Position Premium Dollar Premium Delta Buy one $20 crude oil call $1.17 $1,170 +.52 Maximum risk $1.17 per barrel $1,170 per contract Maximum profit Unlimited on the upside Break-even futures price $21.17 Position Premium Dollar Premium Delta Buy one $260 gold call $6.70 $670 +.50 Maximum risk $6.70 per oz. $670 per contract Maximum profit Unlimited on the upside Break-even futures price $266.70
THERE IS A RISK OF LOSS IN FUTURES TRADING AND IS NOT SUITABLE FOR
ALL INVESTORS. ONLY RISK CAPITAL SHOULD BE USED WHEN TRADING FUTURES.
Copyright 2008 Capitol Commodity Services, Inc. All Rights Reserved.
Education
- Futures Education
- Options Information
- Options Strategies
- Long At-the-Money Call
- Short Out-of-the-Money Call
- Covered Call
- Ratio Write
- Long Out-of-the-Money Call
- Long At-the-Money Put
- Short Out-of-the-Money Put
- Short Covered Put
- Bull Call Spread
- Bear Call Spread
- Bear Put Spread
- Bull Put Spread
- Long At-the-Money Straddle
- Long Strangle
- Short At-the-Money Straddle
- Short Strangle
- Call Ratio Backspread
- Put Ratio Backspread
- Synthetic Long Put
- Synthetic Long Call
- Synthetic Short Futures
- Synthetic Long Futures
- Fence
