Today gold does not freely circulate as everyday currency, but it is widely found in many investment and retirement portfolios. If you want to diversify your portfolio, you would want to invest in gold stock.
Types
There are two basic types of gold stock options with a great number of variations: puts and calls. The most popular option is the call option. Purchasing a call option on a gold stock gives you the right but not the obligation to purchase a specified number of shares of the underlying stock for a set price at any time prior to the expiration date. Owning a put option gives you the right to sell a specified number of shares of stock for a set price at any time prior to the expiration.
Gold stocks are not gold - rather they are shares in gold mining companies. If the gold price rises, profits of a gold mining company should rise and as a result the share price should rise. There are many factors to take into account and it is not always the case that a share price will raise when the gold price increases. It is important to consider different factors which influence gold prices as well as on political, economic, nationalization or environmental risk.
Gold stock options
Stock options are a contract between two parties that expires at an agreed-upon time in the future. The contract purchaser is buying the right, but not the obligation, to buy a gold mining stock (a 'call' option) or sell (a 'put' option) a gold mining stock (the 'underlying') at a specific price, on or before the agreed-upon date, the date of expiration.
Speculating in gold and other precious metals can produce spectacular results, but it can also result in dramatic losses. Investing in gold stocks or gold stock mutual funds spreads the risk around. For seasoned investors who want to have a stake in this potentially lucrative market but who also want to limit their liability, the answer might be stock options in gold.
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