Selling gold put options

Do it right and you will not only beat your other investments with this method, but you can thrive in an otherwise unfriendly economic climate. James Cordier is the founder of www. While fundamentals are unquestionably important in commodities, there are times when macroeconomic conditions take center stage and must be given their due weight. So we can all quit our belly aching and get back to what we were doing. October, though, when it became a certainty involving both the dollar and gold, which are normally negatively correlated. Each must continue to be judged on its own merits. The Fed has pretty much announced another round of quantitative easing, QE2 as it has come to be called. Those investors would be wrong. There are far fewer factors to consider when analyzing a commodity than there are when analyzing a stock.

Regardless, many high net worth investors are not feeling the love. Yes, indeed, it ended last year. Traders must be careful, however, not to position a full option selling portfolio based on one factor. Late 2010 appears to be one of those times. And a weaker dollar is often a supportive factor to commodities. It has torpedoed the dollar and further spurred gold prices to new record highs.

New commodity investors need to grasp the importance of knowing the fundamentals of each commodity they are trading. For instance, a weaker economy could mean less demand for certain products, pressuring prices to the downside. The only question is how much and how open they will leave the window for more intervention. Supply and demand play a major role in dictating price direction of any commodity such as crude oil, corn or silver. Individual fundamentals of a commodity can offset or even trump the value of a weaker dollar. This is a viable method since there is no good mechanism to sell short physical gold, and selling gold futures short on margin can be very risky if the price rises and margin calls are issued. The owner of the contract is not obliged to do so, however, if the price of the underlying asset has made the sale a losing trade.

The investor might elect to purchase enough puts to protect their entire position or just a portion of it. One way to mitigate the volatility of owning gold is to use put options as part of your portfolio. Gold put options also serve as an alternative to taking a short position in physical gold bullion, coins or mining stocks. It is a contract that allows the owner of the put to sell the underlying asset at a specified price on or before a specified time. One can also hedge a financial investment in gold using put options. The intended purpose of gold put options at its outset, as with most derivative contracts, is as a hedging tool for commercial users. COMEX gold options in the United States trade under the symbol OG. Of course, nobody can predict the future, but using the current price is a good starting point. The allure of the metal opens it up for speculative trading, which makes it a fairly risky holding because the price responds quickly to geopolitical and macroeconomic events.

TOCOM gold options in Japan are also American style, with the underlying asset being 1 kilogram of physical gold per contract of 99. Put options become more valuable as the underlying asset declines in price. When buying a put, the most one can lose is the premium paid for the option. For more, see: Can I invest in gold or silver with my Roth IRA? For more, see the tutorial Futures Fundamentals. People today are often encouraged to own some gold as a hedge against inflation or to diversify their investments with hard assets. In order to maintain those established profit margins, the mining operation needs to have a fairly good idea of what the price of gold will be some time in the future when the mined ore can be sold on the market. For more, see: Getting Into The Gold Market. Like other commodities, gold can fluctuate in value, sometimes experiencing large price swings.

Expiration occurs four business days prior to the end of the month preceding the option contract month. In the case of gold options, the underlying asset is gold futures contracts. So please, blow holes in this and make me look like a fool. What he wanted to find out is WHY. Maybe selling a naked call option is what I want. Yes, I did and found this but still reading and digesting. You seem to want to buy when it goes over a certain price and collect premium while waiting. There probably is one, but I am just not seeing it. Could I do this using an inverse ETF? If you used GLD on the NYSE as a proxy for gold it currently trades for around 117.

If you are selling naked puts you would do this at a strike lower than the current market price. It is probably a bet I would not mind making. GLD is quite liquid so this helps if you need to exit and on the spread. The strike price of the puts would be fixed. Thanks for pointing me in the direction I am hopefully looking for. Price goes sideways or down and I collect monthly premiums while this happens and purchase physical. You either buy at a price lower than the current price or you get paid when the option expires. Limited risk with unlimited upside. To be honest not sure.

Thanks for the trade setup. There is also the factor of probably having to put up margin and the transaction costs and the buy sell spread. There is the paper vs. The puts would be exercised if the price goes down. ETF or an inverse ETF. The downside I see is that this could happen sooner rather than later and I could have purchased the 10oz at todays price. In the meantime, I simply just keep taking the profits from selling the puts and buy a little physical along the way. In which case, what is the downside of that trade? Then if the price falls below the option price, you get them put to you.

Trying to determine what is wrong with this trade. Yes sir, I guess I am confused on the mechanism, but I am not confused as to what I want to accomplish and why. Good luck on getting any takers on the other side of the trade. If you do not, the buyer of the call can continue to ride gold up at your expense until expiry. If the price drops below the put level and you get the gold option put to you. Just to give you a rough idea. But at that point why should I be concerned? The only problem is that these are all paper transactions. Need to figure out how far out of the money this would have to be to get that kind of premium and how much capitol it would tie up to cover.

This is the way I understand it, but please shoot holes in this and make me look like a fool. You can go out farther in price of course but options chain I am looking at shows a steep drop in premium and in interest after 121. Otherwise the put expires and you get to keep the cash you pocketed from from the option sale. The price of an options contract is significantly less than the price of buying gold bullion or a share in an ETF. According to The Economic Times gold ETFs are seeing cash outflows! Go to NASDAQ to see the SPDR Gold Trust Option Chain. The chain sheet shows the price, volume and open interest for each option strike price and expiration month.

But you do not need to wait until gold call option expires and buy gold. Gold has gone up fifteen percent since the start of the year. You can simply sell your contract and pocket your profit. ETFs in the near future as gold prices have only just shot up and investors bide time before getting in. But investors are no longer interested. If you think that gold might continue to rise what gold investment option would be best? And the premium paid to buy a call on gold is the most that a trader can lose if gold turns around and loses ground. If you would like to profit from a rise in gold prices but not worry about ever holding gold bullion gold ETF funds allow you to buy and sell shares tied to the price of gold. And you can also buy gold call options in this way. You may wish to learn how to buy gold call options.

Are we into another bull market for the shiny stuff? If you would like to own gold bullion in a rising market read what Investopedia says about how to buy gold options. Call and put options are quoted in a table called a chain sheet. The video is provided for educational purposes only and is not a recommendation to take a trade. Feel free to post any questions you have in the comments below. Meanwhile, as long as such an order was in place, funds would have to be reserved in your account for the purchase. In that case, you would receive the shares of GLD.

Want to Make a Million Dollars Trading Futures? GLD drops to that price your order will be filled. The obligation would cease to exist on the option expiration date, November 20. The stock has been in an uptrend. November expiration, then whoever had purchased the option would find it worthwhile to exercise it. This could be a good thing or a bad thing depending on exactly where the price of GLD is at the time. If it is below, then you would have a loss of money overall. Since August, it has been heading up, making higher highs and higher lows. To learn more, contact your local center about our ProActive Investor Program. That could happen tomorrow, next month or maybe never. Exchange Brochures, Managed Futures Information, and much more!

April 300 gold put option. How great is that? How to Buy Gold. However, you must ensure that you only sell as many contracts as corresponds to the number of shares you want to buy. And the flexibility of the options market allows you to sell options as an opening transaction instead of having to buy them. You must be approved to trade option contracts through your stockbroker.

Alternatively, a seller of put options is adopting a neutral or bullish stance on the underlying asset. But remember, you get to buy GLD at your chosen price. And when you see the wide trading ranges, it also gives you an idea of just how lucrative they can be. GLD comes down to that level. Let me explain to you how you can do so, using one of my favorite strategies when you want to take a bullish stance. What does this do for us? You just need to know how to play them intelligently, using strategies that minimize your risk and maximize your profit potential. Only two scenarios will occur when the December options expiration rolls around. Perhaps the best way to play commodities is through the options market.

So what exactly is the best way to grab profits from the important and often explosive world of commodities? ETF, it trades just like a stock, so you can buy and sell it through a regular stock brokerage account. In short, someone is paying you cash so that you can buy the asset at the price you want. The trade is now over. Easier said than done, right? You can buy the option back any time you wish. This money is yours to keep and it gets immediately placed into your trading account.