How to buy silver options

Buying silver options acquires a silver position with less capital than buying physical silver or silver futures. Silver options are available in the United States through the Chicago Mercantile Exchange (CME), so if you want to know how to invest in silver, here is a short-term and less capital-intensive investment method.

How to invest in silver: bullish and bearish

Options allow traders to profit when the price of silver rises or falls. Believe that the price of silver will rise? Buy call options. Silver call options confer rights but no obligations. Buy Silver is sold at a certain price within a certain period of time (before expiration). The price at which you can buy silver is called the strike price. If the price of silver rises above your strike price before the option expires, you will make a profit. If the silver price is lower than your strike price, you will lose the amount paid for the option, called the premium.

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Put options confer rights but no obligations, Sell Silver is at a specific price (strike price) for a certain period of time. If the silver price is lower than the strike price, you will profit from the difference between the strike price and the current silver price (approximately). If the price of silver is higher than the strike price at expiration, your option will be worthless and you will lose the premium paid for the option.

Option prices are also based on “Greek”, which are variables that affect option prices.

There is no need to hold your options until expiry. Sell ​​put options or call options before expiration to lock in profits or reduce losses.

Silver option specifications

Silver options are cleared through CME, and the transaction code is SO. The value of options is linked to the price of silver futures, which are also traded on CME. 40 execution prices are provided in increments of $0.25 above and below the current silver price. The farther the strike price is from the current silver 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 60 expiration times to choose from, ranging from short-term to long-term.

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Each option contract controls 5,000 ounces of silver.If the cost of the option is US$0.20, the amount paid for the option is US$0.20 x 5,000 = US$1,000, plus commissions. In contrast, buying a 5,000-ounce silver futures contract requires an initial margin of $9,900. The purchase of physical silver requires all the cash expenditures per ounce purchased.

Option trading requires a margin brokerage account that allows option trading. Interactive Brokers, TD Ameritrade and many other brokers provide this service.

The price and trading volume of silver options are available at quotation marks Part of the CME website or a trading platform provided by an option broker.

Bottom line

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

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