Precious metals ETF options are an interesting alternative for those who prefer to keep their trading portfolio simple. By 'simple' we mean not specifically trading commodity futures options on the CBOE but staying with stock exchange based trading instead.
The thing about commodity futures options on precious metals is, that the calculation of your investment and returns includes an extra step. Whereas options on stocks and ETFs is a simple matter of knowing that one options contract covers 100 of the underlying stock, it's a different matter when it comes to commodity futures.
With futures, you also need to know how the underlying commodity is measured in units and how many units are covered by one options contract. They're all different.
For example, for gold, one options contract covers 100 troy ounces, while one silver futures options contract covers 5,000 troy ounces and one copper futures option contract covers 25,000 pounds.
See why it's much simpler to trade precious metal options on an ETF instead?
The Exchange Traded Fund (ETF) is a company. The options are on their stocks. Trading ETF options bypasses the extra step while at the same time, you can benefit from all price moves in the underlying commodity - the precious metal.
It's simply a matter of going to your stock and options broker and knowing the codes for each ETF, to type into your charting software so that you can complete your analysis. The trading process from there is exactly the same as for any company stock.
Here is a list of all US Exchange Traded Funds that are currently included in the Precious Metals ETF Category. Some are more highly traded than others.
CODE: Exchange Traded Fund
GLD SPDR Gold Trust
SLV iShares Silver Trust
IAU iShares Gold Trust
SGOL ETFS Physical Swiss Gold Shares
PPLT ETFS Physical Platinum Shares
PALL ETFS Physical Palladium Shares
SIVR ETFS Silver Trust
DBP PowerShares DB Precious Metals Fund
GLTR ETFS Physical Precious Metal Basket Shares
DGL PowerShares DB Gold Fund
AGOL ETFS Physical Asian Gold Shares
DBS PowerShares DB Silver Fund
PTM UBS E-TRACS CMCI Long Platinum Total Return ETN
WITE ETFS Physical White Metal Basket Shares
TBAR RBS Gold Trendpilot ETN
PGM iPath Dow Jones-AIG Platinum Total Return Sub-Index ETN
JJP iPath Dow Jones-AIG Precious Metals Total Return Sub-Index ETN
UBG UBS E-TRACS CMCI Gold Total Return ETN
USV UBS E-TRACS CMCI Silver Total Return ETN
BLNG iPath Pure Beta Precious Metals
RGRP RBS Rogers Enhanced Precious Metals ETN
GLDI Credit Suisse Gold Shares Covered Calls ETN
SLVO Credit Suisse Silver Shares Covered Call ETN
Exchange Traded Funds are trusts which are set up for the specific purpose of acquiring a basket of financial assets representative of a particular market or segment thereof. For example, the QQQ fund holds an average weighted basket of all stocks that comprise the Nasdaq 100 index. The SPY fund holds a basket of shares from the companies that make up the S&P500 index.
A precious metals ETF is no different. Instead of acquiring company shares, they will hold a basket of precious metals futures in such a way that price movements in the precious metal itself will be reflected in the price action of the ETF shares. If you like trading gold options, then comparing a Gold Chart with a chart of the GLD Gold Trust (ETF) will display a striking similarity.
Trading options on a precious metals ETF can be quite rewarding if you have a good system and the personal discipline to stick to it.
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