Gold Options Explained

Gold options are option contracts in which the underlying asset is a gold futures contract.
Gold Options Explained

The holder of a gold option possesses the right (but not the obligation) to assume a long position (in the case of a call option) or a short position (in the case of a put option) in the underlying gold futures at the strike price.

This right will cease to exist when the option expire after market close on expiration date.

Gold Option Exchanges

Gold option contracts are available for trading at New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).

NYMEX Gold option prices are quoted in dollars and cents per ounce and their underlying futures are traded in lots of 100 troy ounces of gold.

TOCOM Gold options are traded in contract sizes of 1000 grams (32.15 troy ounces) and their prices are quoted in yen per gram.

Call and Put Options

Options are divided into two classes - calls and puts. Gold call options are purchased by traders who are bullish about gold prices. Traders who believe that gold prices will fall can buy gold put options instead.

Buying calls or puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders. More complex option trading strategies, also known as spreads, can also be constructed by simultaneously buying and selling options.

Gold Options vs. Gold Futures

Compared to the outright purchase of the underlying gold futures, gold options offer advantages such as additional leverage as well as the ability to limit potential losses. However, they are also wasting assets that has the potential to expire worthless.

Additional Leverage

Compared to taking a position on the underlying gold futures outright, the buyer of a gold option gains additional leverage since the premium payable is typically lower than the margin requirement needed to open a position in the underlying gold futures.

Limit Potential Losses

As gold options only grant the right but not the obligation to assume the underlying gold futures position, potential losses are limited to only the premium paid to purchase the option.

Flexibility

Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.

Time Decay

Options have a limited lifespan and are subjected to the effects of time decay. The value of a gold option, specifically the time value, gets eroded away as time passes. However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them.


Want to know more? Fill out this form and we will get in touch to discuss our strategies. No obligations, Ever!

An offshore commodities and forex trading firm, Red Maple Trading offers a combination of first-class trading advice and an award winning portfolio management team with an exemplary trading record.

Red Maple FX offers both non discretionary trading accounts and fully managed trading accounts. Call Toll Free + 1 888 673 2812

More Posts
  • Precious Metals Settle Lower on Dollar Strength and Hawkish Fed Comments
  • Golds support at 1485 to restrict further declines - MKS PAMP Group
  • Precious Metals Tumble on an Easing of Geopolitical Risks
  • Gold prices poised to challenge all-time high
  • Precious Metals Settle Mixed as a Slump is Stocks and the Dollar Boosts Gold
  • Gold price to hit 1600 on geopolitical turmoil
  • Gold Futures Market News and Commentary
  • U.S. yield curve: Invert steepen repeat
  • Gold Silver Prices Firmer as Traders Buy the Dips
  • Why You Should Be Investing in Commodities
  • Learn How To Trade Orange Juice
  • INVESTING IN ORANGE JUICE THROUGH FUTURE MARKET CONTRACTS
  • Are We Looking at a Dead Cat Bounce in Oil
  • AAA: Gas prices will continue to rise nationally as Nevadans see 4th highest in U.S.
  • OPTIONS TRAINING EXPLAINED
  • Gasoline Diesel and Crude Oil Prices
  • Brent vs. WTI Crude Oil - What is the Difference
  • What is RBOB Gasoline
  • RBOB Gasoline Futures
  • RBOB Gasoline - Get in on the action
  • What is RBOB Gasoline
  • How to Invest in Crude Oil
  • Senior Accounts Manager Patrick Bates Strong on Long Gold
  • Offshore Investment
  • Gold Options Explained
  • Gold Prices Rise Towards Fresh 10 Month High as Dollar Slips
  • Gold Outlook 2019: How to Profit From Last Years Slide
  • Long Gold Is Goldman Sachs Favorite Commodity Play Right Now
  • How To Buy Gold Options
  • How can I buy oil as an investment
  • What is Offshore Investing
  • How the Oil and Gas Industry Works
  • The gold standard - All you need to know.
  • Liquefied Natural Gas - Game Changing Energy Trends For 2019
  • Natural Gas Production - Game Changing Energy Trends For 2019
  • Heating Oil Futures Option Trading primer
  • Deepwater Drilling - Game Changing Energy Trends For 2019
  • Energy Storage - Game Changing Energy Trends For 2019
  • Geopolitical Risk - Game Changing Energy Trends For 2019
  • Red Maple helps you ONLY buy stocks going up in price