Home > Gold > Gold Investment Options

Gold Options

A gold option, or more specifically, gold option on futures, gives an investor the right (but not the obligation) to buy or sell a specific amount of gold at a fixed price (strike price) on a predetermined delivery date. The main difference between an options contract and a futures contract is that the options contract holder do not have the obligation to buy or sell the underlying gold. Therefore, the options buyer's downside risk is strictly limited to the cost of the option - i.e. the premium plus any transaction costs.

Hence, the advantages of buying gold options is that they provide financial leverage, plus the additional downside risk protection. The disadvantage in purchasing options is that they are wasting assets - they can expire worthless if price of gold does not appreciate beyond the strike price within the lifespan of the option.

What was described in the preceding paragraph is just a very simplified example on how to trade basic call options. For the novice investor, options trading can be a rather complicated subject. A good site to learn more about options trading is www.theoptionsguide.com.