So I’ve heard about gold ‘options’ but then heard you don’t actually own the gold but trade on it? This sounds a lot like stocks. Maybe I am completely wrong about this and why I’m asking for someone to explain it to me like I’m five 🙂
So I’ve heard about gold ‘options’ but then heard you don’t actually own the gold but trade on it? This sounds a lot like stocks. Maybe I am completely wrong about this and why I’m asking for someone to explain it to me like I’m five 🙂
Comments
CME’s gold options use the same exchange’s gold futures as the underlying asset.
As such, the buyer of a call option is buying the right to buy an amount of gold futures contracts (promises for a supplier to deliver an amount of gold at a fixed price at some later date). If the spot price of gold were to increase, those futures contract would increase in value and thus that option could be exercised for a profit.
In practice, it’s largely the same as trading options on stocks, but instead of shares of a company, you’re trading derivates of promises to receive commodities.