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Platinum Options Explained
Platinum options are option contracts in which the underlying asset is a platinum futures contract. The holder of a platinum option possesses the right (but not the obligation) to assume a long position (in the case of a call option) or a short position (in the case of a put option) in the underlying platinum futures at the strike price. This right will cease to exist when the option expire after market close on expiration date.
Platinum Option Exchanges
Platinum option contracts are available for trading at New York Mercantile Exchange (NYMEX).
NYMEX Platinum option prices are quoted in dollars and cents per ounce and their underlying futures are traded in lots of 50 troy ounces of platinum.
| Exchange & Product Name | Underlying Contract Size | Exercise Style | Option Price Quotes |
| NYMEX Platinum Options | 50 oz (Full Contract Specs) | American | Calls | Puts |
Call and Put Options
Options are divided into two classes - calls and puts. Platinum call options are purchased by traders who are bullish about platinum prices. Traders who believe that platinum prices will fall can buy platinum put options instead.
Buying calls or puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders. More complex option trading strategies, also known as spreads, can also be constructed by simultaneously buying and selling options.
Platinum Options vs. Platinum Futures
Compared to the outright purchase of the underlying platinum futures, platinum options offer advantages such as additional leverage as well as the ability to limit potential losses. However, they are also wasting assets that has the potential to expire worthless.Additional Leverage
Compared to taking a position on the underlying platinum futures outright, the buyer of a platinum option gains additional leverage since the premium payable is typically lower than the margin requirement needed to open a position in the underlying platinum futures.Limit Potential Losses
As platinum options only grant the right but not the obligation to assume the underlying platinum futures position, potential losses are limited to only the premium paid to purchase the option.
Flexibility
Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.
Time Decay
Options have a limited lifespan and are subjected to the effects of time decay. The value of a platinum option, specifically the time value, gets eroded away as time passes. However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them.
Related Articles
- Platinum Futures Basics
- Buying Platinum Futures to Profit from a Rise in Platinum Prices
- Selling Platinum Futures to Profit from a Fall in Platinum Prices
- Platinum Call Option Trading Basics
- Platinum Put Option Trading Basics
- Hedging Against Rising Platinum Prices with Platinum Futures
- Hedging Against Falling Platinum Prices with Platinum Futures
How to Start Trading Platinum Options
To buy or sell platinum options, you need to open a trading account with a broker that handles futures options trades. Most online options brokerages out there only deal with stock options and only a few such as optionsXpress lets you trade BOTH stock and futures options. optionsXpress also provide a virtual trading platform where beginners can try out futures and options trading in real market conditions without using real money.
