Option
An option is simply the right to buy (a 'call' option) or sell (a 'put' option) a quantity of any asset by an agreed expiry date for a fixed ('strike') price.
An option is simply the right to buy (a 'call' option) or sell (a 'put' option) a quantity of any asset by an agreed expiry date for a fixed ('strike') price.
As with insurance policies, the buyer of an option pays a non-refundable premium to the seller for the right to either exercise the option before it expires, or abandon it. So, someone who holds gold and is worried about the price falling but doesn't want to sell in case they are wrong could buy a threemonth 'put' option instead.
Should gold fall over the three months it can be delivered to the option seller at the higher fixed strike price rather than the market price. Should gold rise, the buyer can abandon the option, hold onto their gold and just suffers the option premium cost.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Watch Tim Bennett's video tutorial: What are options and covered warrants?
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
Six investment funds for beginners
Beginner investors can use funds to start building their portfolio, making it easy to access global trends while managing their risk level. Here’s six funds that beginner investors can consider.
-
Farming isn't for the faint-hearted – and isn't profitable
Opinion Farming may look appealing, but turning a profit is extremely hard. No wonder many farmers are attracted to the Sustainable Farming Incentive, says Max King