Futures contracts are very hard to predict. Trying to decide whether a security is going to go up or down is very difficult for some. Sure, there are some excellent indicators of where a stock is going to go in the short but there is no set idea on it. The truth of the matter is that futures contracts can be traded just like any other stock. It is the way that the market works and those who are not patient usually get burned.
- Futures contracts are available for an array of products, such as equity indexes and also precious metals.
- Gold options are based upon gold futures, otherwise referred to as the underlying.
- If you believe the underlying on your potential gold option is slated to increase you can put in what is called a call option.
“The option writer’s profit is limited to the premium received, but liability is large since the buyer of the option is expecting the option to increase in value. Therefore, option writers typically own the underlying futures contracts they write options on. This hedges the potential loss of writing the option, and the writer pockets the premium.”