“Because metal markets are highly responsive to overreaching global economic and geopolitical influences, they present a unique, exciting and potentially rewarding opportunity for individuals who seek to profit by correctly anticipating price changes.”
Source: Options Strategy Guide for Metal Products; written by CME Group
NOTE: Futures and options trading is speculative in nature and involves substantial risk of loss. Trading is not suitable for all investors.
Options on futures are exchange-listed contracts which offer traders the tools to express one’s opinion in gold, silver or copper markets.
Options strategies, using options on futures contracts, allow traders to take advantage of a variety of market conditions and with varying levels of risk. In the cash (spot) market, investors are limited to holding metals (long position) or staying on the sidelines. Futures contracts offer the ability to hold a short position just as easily as holding a long position. But with options on gold, silver and copper futures, traders can structure specific strategies ranging from bullish to bearish and volatile to stable.
12 basic option strategies
Market Outlook Possible Strategy
Bullish Buy a Call Option
Bullish Bull Call Spread
Bullish Bull Put Spread
Neutral to slightly Bullish Sell (short) a Put
Neutral or Stable Short Straddle
Neutral or Stable Long Butterfly
Bearish Buy a Put Option
Bearish Bear Call Spread
Bearish Bear Put Spread
Neutral to slightly Bearish Sell (short) a Call
Price Volatility(In Either Direction) Long Straddle
Price Volatility(In Either Direction) Short Butterfly
NOTE: The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions and fees.
The buyer of a futures option call contract has the right, but not the obligation, to buy the underlying futures contract at a specific price and time, allowing participation should there be a favorable price movement. If the market moves against the option position, the holder can let it expire worthless, with the only cost being the premium paid and the sales commission paid.
The buyer of a futures option put contract has the right, but not the obligation, to sell the underlying futures contract at a specific price and time, allowing participation should there be a favorable price movement. If the market moves against the option position, the holder can let it expire worthless, with the only cost being the premium paid and the sales commission paid.
Metal option contacts which trade at CME Group are known as American-style options. This means that the option contract can be exercised at the buyer’s discretion on any trading day up to and including the expiration date. An option on futures is exercised into a futures contract position.
CME Group has an educational booklet we’d like you to have. In it, you will find hypothetical trades presented in an educational format, which illustrates these 12 trade strategies in graph and tabular format, illustrating:
• Market objective
• Profit/loss potential
• Glossary, Contract Specifications
• And more!
Each strategy is explained in terms of:
• Profit Potential and Profit Point
• Loss Potential and Loss Point
• Break-Even Point
• And whether or not margin is required to initiate and hold the position
Learn more about trading options on gold, silver and copper futures by downloading the OPTIONS STRATEGY GUIDE FOR METAL PRODUCTS.
Trading futures and options is speculative in nature and involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources.