In a time of Coronavirus induced economic instability — taking RISKS and putting all your eggs in one basket is not a good idea.
After all, if the dollar collapses, do you trust the banks to protect your wealth?
Fiat currencies around the world are facing instability not seen for over a hundred years.
Right now the market indexes are in a state of turmoil, with volatile investor sell-off motivated insanity. Traditional forms of investing have seen the tailwind of a depression.
Today my aim is to walk you through buying Gold options
I’ve been observing trends in our economy and using it to our reader’s favor for years, and today, I’m going to share my observations on how to effectively buy gold futures, gold put options, and profitable gold calls.
In case you didn't know Gold has been used as a storage of wealth for thousands of years. Coveted for its beauty and value, it is the ultimate investment.
A great way to invest in the lucrative world of gold (without holding physical gold bullion) is via gold stocks.
Futures and Options trading is a surefire way to invest large with less money. If you lack the upfront capital to buy several ounces of gold bullion - this article might be for you.
Keep reading until the end of the article to discover if you’re retirement savings will survive the coming “Black Swan” economic event in 2020.
Gold Futures Trading
A “future” is essentially a deal set some time in the future but with the terms decided now.
It is a contract that stipulates the delivery of a particular product -- in our case, gold -- at a given time in the future at a predetermined set price.
The delivery or settlement day is usually three months ahead and traders use this delay to speculate the rise and fall in Gold prices.
Risky, you'd think? Not so much. You can manage this risk by trading before the settlement day. Using this method you deal only in gains on losses.
With gold futures trading you essentially get more for your money.
This is done through gearing or leverage. If you have say $5,000 to invest, you could go and buy $5,000 worth of gold, HOWEVER trading in gold futures gives you the option to buy up $100,000 of gold futures.
This is assuming your margin is about 5%.
So if the price of gold rises 5% you’ve earned $5,000 with futures but only $500 with actual bullion.
How to Buy Gold Futures
Futures contracts are traded all over the world.
Professional traders invent their own contracts but fortunately there are standardised contracts which are traded through a financial futures exchange.
The exchange will decide the settlement date, amount and delivery conditions.
Standardised contracts have numerous advantages to you as a speculator including giving you the option to sell when you choose to whomever you chose.
They also provide a central clearer, these clearers guarantee against default of both parties (buyer and seller) and also look after the margin calculations and collect and hold the margin for buyer and seller.
You can identify the gold futures symbol by checking out COMEX Gold Options and Futures
CME Gold Options represent the world’s leading benchmark futures contract for gold prices. The contract offers superior liquidity, trading the equivalent of nearly 27 million ounces daily.
Gold Options Trading
Gold options are contracts where the actual asset behind the trade is a gold futures contract (see above).
The gold option gives the purchaser the right, but not the obligation to buy the futures contract. Options are divided into two types or classes, Calls and Puts.
Calls are purchased when a trader is confident in a rising price in the gold markets and Puts are purchased when a fall is expected.
These are not the only methods of trading. You can also sell or use a combination of strategies known as a spread.
Trading gold options is often considered a safer bet than gold futures as the gold option buyer often has a lower premium than the margin required with gold futures. Any losses are limited to the purchase price.
You can trade gold options alone or in a combination with gold futures options implementing a broad risk-reducing strategy which can often guarantee excellent returns.
How to Trade Gold Options?
Contracts are traded on both the New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).
NYEX gold options are traded at 100 troy ounces of gold while TOCOM gold options are traded for 1000 grams of gold. These are minimum purchase requirements and non-negotiable.
Gold Options Prices
Options and futures trading prices can be found at this link:
This YouTube video explains a lot of what you need to know about gold options trading and highlights how they are infinitely more profitable than purchasing gold itself.
It also outlines how you can minimise your losses.
Tips for Trading Options and Futures
Constant Monitoring of The Market
Pay attention to global events. COVID-19 is a 'golden' example. No pun intended. Current affairs often help predict where the price of gold will go. Historically, gold has been rising since 1979 so staying informed will help you time your trades to capitalise on steep uphill price movements.
Set a Limit and Trade Demo
Begin by trading with a demo account. This will give you a “feel” for the market. When you do switch to real money, deal in small amounts to begin with. Set yourself loss limits and stick to them.
Don’t be Hasty
You will occasionally need to make quick decisions. Try not to be too hasty and ensure any decision you make is well informed.
They're the basis of technical analysis. Learn how to use trend lines - find a trend, confirm it and trade with it.
Hedging is sort of like an insurance to help you insure yourself against loses. This is really important to maximise profits.
1-2-3 System Strategy
This is a system based on price action that relies on reversal patterns. Most of the big moves in financial markets are composed on 3 or more up/down waves. It’s a great system for a novice trader.
Never Stop Learning
The gold market is constantly evolving and adapting to the modern world. Keep yourself on top of the trends. There is plenty of information to be found on the internet even on sites such as Wikipedia.
Learning how to trade gold futures and options is an easily accessible entrance into the exchange market.
It gives investors an opportunity to make money whether the market for gold is going up or down and offers a position in gold for substantially less capital than expected.
With gold options and futures you won’t go broke but instead use the leverage and flexibility to profit big from small investments.
Now finally, without further ado..
As an Investor (or future investor), you need to be in a position to forecast and predict market volatility before it happens.
If COVID-19 has taught us anything, it's that we need to prioritize diversifying our portfolios to prepare for future market turmoil.
For those who take advantage of it, the coming decade could return untold fortunes.