How to buy gold options

One advantage of options is that compared to buying physical gold or gold futures, you can use gold options to obtain a gold position with less upfront capital. The United States can buy gold options through the Chicago Mercantile Exchange (CME), so if you want to know how to invest in gold, here is a short-term and less capital-intensive investment method.

Key points

  • Gold options are options contracts that use physical gold or gold futures as their basic tools.
  • Gold call options give contract holders the right to buy metal at a preset price before expiration and the right to sell options.
  • Gold options traded in the United States are listed on CME COMEX and use gold futures (representing 100 troy ounces of gold) as their underlying assets.
  • Please consult your broker to see if you can enter these markets through their platform.

Gold call options and put options

Whether the price of gold rises or falls, you can use options to make a profit-or even stay the same. Believe that the price of gold will rise? Buy gold call options. Call options give the right to buy gold at a specific price within a specific time (expiry), but there is no obligation. The price at which you can buy gold is called the strike price. If the price of gold rises above your strike price before the option expires, you will make a profit. If the price of gold is lower than your strike price at expiration, you will lose the cost you paid for the option, called a premium.

Put options give the right to sell gold at a specific price (strike price) for a certain period of time, but there is no obligation. If the gold price is lower than the execution price, you will profit from the difference between the execution price and the current gold price (approximately). If the price of gold is higher than your strike price at expiration, your options will be worthless and you will lose the premium you paid for the options.

If you think that the price of gold will not fluctuate significantly for a long time? You can write a guaranteed call option or sell a straddle option to profit from the sideways market.

There is no need to hold your options until expiry. Sell ​​at any time to lock in profits or reduce losses.

How to trade gold options

To buy gold options, traders need a margin brokerage account that allows futures and options trading provided by services such as Interactive Brokers and TD Ameritrade. Not all brokers allow direct access to the gold options market, and even when trading options, you may be limited to options on stocks and ETFs (although you can use this ability to trade options on gold ETFs or mining stocks).

Please consult your broker to find out if they offer gold options and futures trading, and if so, what is needed to enter these markets.

Gold option specifications

Gold options are cleared through the Chicago Mercantile Exchange (CME) and its COMEX department under the trading code “OG”. The value of options is linked to the price of gold futures, which are also traded on CME. Provides 40 separate execution prices, which are $5 higher than the current gold price. The farther the strike price is from the current gold price, the cheaper the premium paid for the option, but the less likely it is that the option will be profitable before expiration. There are more than 20 expiry times to choose from, ranging from short-term to long-term.

Each option contract controls 100 ounces of gold. If the cost of the option is US$12, the amount paid for the option is US$12 x 100 = US$1200. Buying control of 100 ounces of gold futures contracts requires an initial margin of US$7,150. The purchase of physical gold requires all cash expenditures per ounce purchased.

Gold option prices and trading volume data are available at quotation marks Part of the CME website, or through a trading platform provided by an option broker.

Bottom line

Call options and put options enable traders to profit from an uptrend or a downtrend in gold in a less capital-intensive way. If the option expires worthless, the amount (premium) paid for the option is lost; the risk is limited to this cost. Trading gold options requires a margin brokerage account with access to the options.

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