Apart from futures, options are a form of derivative contract that gives the buyer of the contracts the right to buy a contract (a call) or sell (a put) a contract. For options traders, this can include any contracts on equities, bonds, interest rates, and currencies. The basics of an options trader are also covered in “what is an options trader”.
In the case of Gold and Silver, these options are cleared through the COMEX unit of CME. Both precious metals are actively traded to diversify an investor’s portfolio.
While both products are similar in properties, they are different in value, the value of gold is determined by the market where it can be held onto or traded. On the other hand, silver is affected by its stored value and its use in batteries, circuits, and electrical parts.
Hence, this article will cover the factors affecting the prices of these metals and the contract specifications of gold and silver options.
How to Decide on Gold or Silver Call and Put Options
A call on gold or silver options is done when a trader expects the prices of the market to increase. The trader will then be able to purchase gold bullion at a future date at an agreed-upon price (lower when the trade occurs.)
Contrastingly, a put-on gold or silver option is done when a trader expects the market prices to fall. The trader will then be able to sell at the predetermined higher price. (In comparison to the market price on that day)
Apart from the price patterns of the product itself, some traders may also turn to the Gold and Silver Ratio to use strategies such as spread trading.
Gold-To-Silver Ratio
When comparing silver to gold or gold to silver, there is a measure of how many ounces of silver are required to buy an ounce of gold. This is also known as a gold-to-silver price ratio.
The ratio is an indicator by some traders of when to purchase silver as wide fluctuations and volatility towards a high ratio represent more profit from purchasing silver. On the opposite, a low ratio could represent a good time to purchase gold.
On September, Luckbox magazine reports that the gold/silver ratio “started 2022 trading at roughly 78, but has since rallied all the way up to 93, and the relative strength in the ratio appears to be rooted in silver weakness.”
The advantages of using the gold-to-silver ratio spread are the reduced volatility and lower margin requirements as the legs are both from CME/COMEX. CME Group also explains that it will be easier for traders to visualize patterns and thereby take a directional view or implement a technical trading strategy.
The current ratios can be found in the graphical representation from goldprice.org here.
Gold Options
Gold Options from COMEX has a contract unit of $100 troy ounces with a minimum price fluctuation of 0.10 per troy ounce/$10.00.
The contracts are monthly contracts listed for 20 consecutive months and any Jun or Dec in the nearest 72 months.
Trading Hours for CME Globex are from Sunday to Friday, at these trading hours:
6:00 pm – 5:00 p.m ET (5:00p.m – 4:00 p.m. CT)
With a 60-minute break each day beginning at 5:00p.m (4:00 p.m CT)
E mini–NASDAQ Futures product code:
CMEX Globex: OG
CME Clearport: OG
Clearing: OG
Silver Options
Gold Options from COMEX has a contract unit of 5000 troy ounces with a minimum price fluctuation of 0.001 per troy ounce/$5.00.
The contracts are monthly contracts listed for 6 consecutive months and 3 months of March, May, September, and any July and December in the nearest 60 months.
Trading Hours for CME Globex are from Sunday to Friday, at these trading hours:
6:00 pm – 5:00 p.m ET (5:00p.m – 4:00 p.m. CT)
With a 60-minute break each day beginning at 5:00p.m (4:00 p.m CT)
E mini–NASDAQ Futures product code:
CMEX Globex: SO
CME Clearport: SO
Clearing: SO
Market News
Based on the Financial Express news, gold prices retreated from the 52,500 level after prices failed to sustain near the day’s high in the last session. COMEX gold is trading flat near $1740 on Wednesday, as the dollar index corrected on expectations that the Federal Reserve will hike interest rates at a slower pace in the near-term.
Separately, in a report by dailyforex.com, gold futures struggled to stay above $1,750 an ounce by the end of last week’s trading, as the gold market was affected by the rise of the US dollar.
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