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Sell 1 December Gold 750 put @ 16

Buy 1 December Gold futures @ 725

Buy 1 December Gold 725 put @ 25.5

Calculated margin = $271

Hedge risk = $0 (the difference between the put and the futures is 0)

Profit potential = $2,500

 30% commitment rule means you could put on 4 contracts without overleveraging yourself

$2500 x 4 = $10K profit potential

Total risk = $271 x 4 contracts = $1,084 in total margin

Risk/Reward ratio = 1:10 – for every dollar you risk, you give yourself the chance to make $10.  That’s a 1000% ROI.

 If the trade went totally against us, we would still collect the premium on the sold call ($1600) by holding it to expiration, and our put would gain in value as gold fell below 725.