Gold Option
Categories: Derivatives
We might have to fight for our right to party, but if what we really want is the right to buy or sell gold at a particular price on or by a particular future date, then all we have to do is buy gold options. Because that’s what gold options do.
We can either buy a call (the right to buy gold at a specific price on or by a specific date) or a put (the right to sell gold at a specific price on or by a specific date) or, if we’re feeling hedgy, we can buy both calls and puts and really go wild.
Something that’s probably worth mentioning: when we buy gold options, we’re buying the right to buy or sell, but not the obligation. If our option’s expiration date is approaching and we decide we don’t wanna exercise it, we don’t have to.
Why wouldn't we? Because it might not be financially advantageous for us to exercise an option if the value of gold is lower (in the case of a call) or higher (in the case of a put) than we need it to be to make us money.
Something else that’s probably worth mentioning: when we buy gold options, we pay a premium for the privilege. Even if we don’t end up exercising those options, we still pay the premium. That’s just how it goes. It’s like the nonrefundable deposit we have to pay on vacation rental homes: even if we end up canceling the vacay because the entire family somehow came down with pneumonia, we’re still out the deposit money. That’s the bad news. The good news is that that’s the only money we’re out. This limited risk is why options can be an appealing choice for investors. But just as we wouldn’t advocate renting a vacation home without looking at some pictures and a map and reading some reviews, we also wouldn’t advocate buying gold options without doing a little homework and research first.
Related or Semi-related Video
Finance: What is the Gold Standard?4 Views
What is the gold standard? Alright people well it's a kind
of value number line that everyone trusts gold gold gold gold yeah like [hand draws line against ruler, fills with gold]
that an ounce of gold in India is generally worth the same as an ounce of [map of world]
gold in China the US Argentina even Somalia assuming it's an actually real
gold and not fake gold or pyrite yeah yeah we know what you did [Somalian with gun in village]
alright well because gold is so universally or planet airily trusted it [gold ingot floating in space]
kind of comprises a monetary system unto itself [gold ingot orbiting earth]
its economic unit is the heart of most modern economies or at least their [skeleton with golden heart]
history and like a tub of Neapolitan ice cream it comes in three flavors species [tub of ice cream]
bullion and exchange alright so let's start with gold species with Vichy but
it's way better it is the standard monetary unit associated with gold coins
well obviously in a world where gold is being exchanged for things of value like [crate of good and bag of gold ]
mining picks Levi's jeans and food gold itself or the store of value has to be
modularized in the standardized units and that's what gold species is all
about alright next up the gold bullion standard alright well that's a system
where gold coins are stored in the coffers of governments as a kind of
collateral or guarantee against a usually paper circulating currency like
the US government has a whole bunch of gold in Fort Knox in Kentucky there yeah [US government building]
and they guarantee the paper value of a dollar in theory based on that gold
reserve in Kentucky even though today it's a small tiny rounding error of all
the paper that's out there alright well finally we have the Gold Exchange
standard which is usually simply a government backing or guarantee of a
fixed exchange rate for what the government will do in return for them [Uncle Sam holding cardboard sign]
being given an ounce of gold well the real gold standard however kind
of faded away through the 20th century as so many countries drew irresponsible [highway sign saying "now leaving Gold Standard]
financial practices as the norm norm the quote honesty unquote of a fixed rate
gold exchange simply put too much pressure on the desire for countries to
have internationally weak currencies hoping to stimulate
exports from their own hard-working citizens the big advantage here well in [Fidget Spinner boat in Atlantic ocean]
essence the gold standard limits the power of government to make too many [Uncle Sam holding knife]
stupid moves and the foundation of that control is that if a government's
currency or ability to buy stuff is limited by the amount of gold they have
in their coffers well then they have to live within their set budget and I like
the rest of us right unlike a paper backed currency like what we have in the
US governments then can't just run a printing press anytime they want [dollars getting printed]
printing money out of thin air making more gold to pay for I don't know
congressman pickpockets private shuttle from Virginia to DC or a new five [congressman getting out of taxi]
hundred thousand dollar after-school program for kids who are addicted to [kid biting pencil in class]
biting pencils anyway the biggest disadvantage here is that governments
are actually then culpable for the money they spend ie their budgets that's the
problem with a real full gold standard it forces people to act financially
responsible yeah that would be terrible well when you look around that would not [wheel of fortune landing on Greece/Somalia]
be such a terrible thing at all