Bull Put Spread
A bull put spread is a combination of a short at-the-money put and a long in-the-money put. Both options have the same expiration. Bull put spreads allow traders to establish bullish positions and take advantage of high premiums. But unlike a short put strategy, a bull put spread has limited risk. For a commodity with generally low volatility, such as gold, this strategy can be employed when volatility is high. Risk is limited to the difference in strike prices minus the net credit. Maximum profits are equal to the net credit.
Position Premium Dollar Premium Delta Buy one $18 crude oil put $0.50 $500 -.29 Sell one $20 crude oil put - Net credit $1.17 $0.67 $1,170 $670 +.52 Maximum risk $1.33 per barrel $1,330 Maximum profit $0.67 per barrel $670 Break-even futures price $19.33 Position Premium Dollar Premium Delta Buy one $240 gold put $1.10 $110 -.15 Sell one $260 gold put - Net credit - Nedt delta $6.70 $5.60 $670 $560 +.50 +.35 Maximum risk $14.40 per ounce $1,440 per position Maximum profit $5.60 per ounce $560 per contract Break-even futures price $254.40
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
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