Long Out-of-the-Money Call
This strategy is essentially a way to buy price protection, while allowing participation in a rising market at relatively little cost.
It is also used for a bullish outlook, and profits if prices rally.
Profits are unlimited on the upside, and risk is limited to the premium paid for the options contract, regardless of where futures trade. An out-of-the-money call requires a stronger price move than an in- or at-the-money option to be profitable, but it is also less expensive. This trade is helped by increasing volatility, but the passage of time works against buy-call strategies.
Position Premium Dollar Premium Delta Buy one $23 crude oil call - Net debit - Net delta $0.30 $0.30 $300 $300 +.21 +.21 Maximum risk $300 per position Maximum profit Unlimited on the upside Break-even futures price $23.30 Position Premium Dollar Premium Delta Buy one $290 gold call - Net debit - Net delta $0.30 $0.30 $30 $30 +.06 +.06 Maximum risk $300 per position Maximum profit Unlimited on the upside Break-even futures price $290.30
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
