How to Buy a Gold Call Option
Call options give their owner the right to buy an underlying asset at a predetermined price. They also tend to appreciate as the underlying asset gains value. Call options are available in the several markets in which gold and gold derivatives trade. Additionally, call options on mining companies, because of their large supply of gold both above and in the ground, are also used to capitalize in the rising value of the yellow metal.
Other People Are Reading
Instructions
-
-
1
Trade in gold futures. Trading in futures and options on futures requires a special trading account that provides real time quotes and access to futures markets. The prinicipal futures market in the U.S. for gold is the New York Mercantile Exchange, or NYMEX. A single NYMEX gold contract controls 100 ounces. Options on these contracts are available in 13 unique strike prices, and trade in $0.10 per ounce intervals.
-
2
Speculate with ETFs. Exchange Traded Funds (ETFs) are investment vehicles similar to mutual funds, invested in a single type of asset, but which trade like stocks. They are available without a futures trading account. The first and most followed gold ETF is the Streettracks Gold Trust, which trades as GLD. Unlike future contracts, ETFs do not expire. The call options available on GLD, however, do have monthly expiration. They are a good way to speculate on short term appreciation in gold, or to lock in a future purchase price.
-
-
3
Invest in miners. Prior to ETFs, one of the most common method of investing in the future rise in value of gold was to invest in gold mining companies. Because many of the gold mining stocks will rise as gold rises, and often at a faster rate, buying call options on individual mining companies was a way to speculate on short term rallies in gold. Miners present risk not inherent in the commodity itself, however, and the correlation between the metal and the miners is not always reliable. Thus, ETFs and futures have largely replaced miners as a speculative vehicle on gold itself.
-
1
Tips & Warnings
Of the trading vehicles described above, only futures contracts can be redeemed for actual gold, in multiples of 100 ounces. ETF call options are settled in shares of the ETF.
Each gold call option that expires "in the money" can trigger an automatic obligation to take delivery of and pay for 100 ounces of gold. If you do not intend on taking delivery, the call option should be sold prior to expiring.
