A gold option is a derivative with gold as the Underlying asset. The gold options contract is an contract between two parties to facilitate a potential transaction on a quantity of gold. In this option, a gold futures agreement would be the Underlying Asset securing the investment. The option agreement terms list details such as the quantity, delivery date and strike price, which are all predetermined.
A gold option gives the holder the right, but not the Obligation, to purchase or sell a specific quantity of gold at a specified strike price on the contract's expiration date.
There are two primary types of options contracts which are put options and Call options.
This option gives the holder the right, not the obligation, to buy a specific amount of gold at the strike price until the expiration date. A Call Option becomes more valuable when the price of gold increases because they locked in a buy at a lower price.
In this option, a holder has the right to purchase the gold. If the holder sell the call, he do not have a choice and must sell the gold at the predetermined price upon the expiration date.
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This option gives the holder the right, but not the obligation, to sell a specific amount of gold at the strike price until the expiration date. A Put Option becomes more valuable when the price of gold decreases because they locked in a sell at a higher price.
When a holder buys the put, he has the right to sell the gold. But, when a holder sells a put, he do not have a choice and must purchase the gold at the predetermined price as per the contract.
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