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Gold Calls (Five year calls? LEAPS? etc.)


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Hi All.

 

I hope you are well. This might be better for Strategies but was unsure.

I have an old Grants article, quote: "(An investor friend relates that he recently bough 250,000 gold calls struck at $500 for five years at a cost of $2 each. Given that that the forward gold price is approximately $370, he observed, the calls are essentially free."

 

So, can you help me understand how one might be able to do this as a non-institutional investor?

Are they talking about long-term calls on futures contracts or?

 

Thanks

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My trade platform is showing quotes on options for gold futures out thru 2026, so yes 5 year options there are possible.  GLD only goes out thru 2022 so less than two years.

 

I can't imagine getting those prices quoted in the article even scaling up for current market prices.  That would be like buying $2500 calls for $10, and the quote I am seeing is more like $300 for that option.  The longest duration option you could actually buy for a premium of 1/2% and a strike price 35% out of the money is the December 2020 call, so only a bit more than five months of runway.

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My trade platform is showing quotes on options for gold futures out thru 2026, so yes 5 year options there are possible.  GLD only goes out thru 2022 so less than two years.

 

I can't imagine getting those prices quoted in the article even scaling up for current market prices.  That would be like buying $2500 calls for $10, and the quote I am seeing is more like $300 for that option.  The longest duration option you could actually buy for a premium of 1/2% and a strike price 35% out of the money is the December 2020 call, so only a bit more than five months of runway.

 

Yeah so it is the futures right? That's how I get 5 year leaps?

 

Yeah, sorry, it is an old Grants article, 10 or more years, don't remember.

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