by Mish Shedlock, The Maven:
Around noon in New York Wednesday, 5,000 lots of a gold option giving the holder the right to buy the precious metal at $4,000 an ounce in June 2021 changed hands. The bets were sold at $3.50 an ounce.
“It’s like 18-month term life insurance; what will the world look like if gold is at $4,000,” Tai Wong, the head of metals derivatives trading at BMO Capital Markets, said in an email. “They are hoping for a quick violent move,” he said, referring to the people who bought the call options.
Gold Headed to $4000?
For the call buyer, it’s not a matter of gold hitting $4,000 but rather gold hitting $4,000 by June 2021.
Of course one would not have to hold the options all the way through.
If gold suddenly spiked by $1,000 right away perhaps the entity cold sell the options for $15 or more at least tripling the bet. Otherwise these options will quickly decay.
Let’s assume the options are held to the bitter end.
Returns On Options Held Full Term
Return Synopsis
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