adamsmiths Posted March 24, 2017 Share Posted March 24, 2017 (edited) Although there are many instruments that a trader can trade, gold attracts many traders due to the safety and opportunities it offers. There are many ways to invest your money in gold and one of them is gold options. A gold option is similar to regular option. Gold bullions are bought and sold at a specified price on a predetermined future date. The quantity, date of delivery and strike price are all decided beforehand. And just like any other option, it is an option not an obligation. Many traders prefer putting options on gold rather than trading gold futures or buying physical gold. This is because gold options require less capital investment and involve lower risk. The gold option is perfect for those who are looking for a short-term and less capital intensive way of fetching decent profit. Calls and Puts Options help a trader to benefit from the rise and fall in the gold prices. Gold call option must be purchased when the prices are expected to rise. Strike price is the price at which gold is bought. If the price of gold rises above the strike price before the expiry date of the option arrives, the trader makes profit. In case the gold price remains lower than the strike price before the option expires, the trader loses what he/she has paid for the option. Put option, on the other hand, gives the right to sell gold at a predetermined strike price within a certain period amount of time. A trader earns profit, if the gold price falls below the strike price. If the prices rise above the strike price, the amount a trader invested will be lost. It is not necessary for a trader to hold a trade till expiry. Options can be sold at anytime you want. This allows you to minimise the loss. Traders must remember both the call and put options are like rights, not obligations. Strategies to Trade Gold Options Although gold options are safe havens, experts suggest that traders who are thinking about venturing into gold options trading must know certain trading strategies. Here are certain strategies that will help both new and experienced traders alike. Iron condor This is a strategy that is considered to be the most suitable strategy for beginners. This is considered a safe way to sell options. This is because a trader does not lose out on either side of the option. In this strategy, a trader picks a trading range. The sell out is made around the range when the option expires out of money. Bull and Bear Spread Bull call spread and bear put spread are the trading strategies that are also known as vertical spreads. This is because they occur within the same expiry period but have different strike rates. Both the strategies quantify easily. Covered Call Covered call or buy-write option is one of the most commonly used strategies. If the trader has a neutral or bullish opinion, he/she can use this strategy. This strategy helps to maximise profits and minimise losses. This is the preliminary information about the gold options that a trader should know. Gold options are suitable for traders who wish to maximise their exposure with minimum risk. Edited March 24, 2017 by Neo Quote Link to comment Share on other sites More sharing options...
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