Commodity Options in AUD

[liquidmaker]

I am thinking long term options on commodities especially metals to be a good long term investment. What is the view on this?

The problem is i would like to buy options on silver, gold and some other base metals like nickel and aluminium. Maybe even oil.

The question is if you would invest around $2000 and invest in AUD to avoid currency risk what platforms do you have available. There is commodity warrants australia but there minimum parcel is $5000. Also if you want to buy some say nickel or aluminium do you need to buy futures?

Would really appreciate some advice as i am finding it difficult to implement my strategy.

Thanks Liquid

 

[WilliamKong]

If you don't want to trade futures (US just recently raised the initial margin and maintaining margin rates), you can buy warrant to get exposure to silver and gold. The price of warrant contract vary depends on the time length and exercise price. The fund needed to buy future contract now is more likely to greater than the fund needed to buy one warrant contract.

 

[wayneL]

If you don't want to trade futures (US just recently raised the initial margin and maintaining margin rates), you can buy warrant to get exposure to silver and gold. The price of warrant contract vary depends on the time length and exercise price. The fund needed to buy future contract now is more likely to greater than the fund needed to buy one warrant contract.

People should be aware of the non-linear dynamics of warrants however... at a minimum. Really, one should have a basic understanding of Black Scholes et al to get understand what may happen with warrant values.

Where can one get pricing for warrants?

 

[wayneL]

William

On further investigation I see those warrants have a 50c exercise price. That makes an entirely different picture altogether. Ignore my comments.

 

[WilliamKong]

People should be aware of the non-linear dynamics of warrants however... at a minimum. Really, one should have a basic understanding of Black Scholes et al to get understand what may happen with warrant values.

Where can one get pricing for warrants?

You can contact your broker to get the price for warrants. I know there are two companies in Australia can provide this information, one is Commodity Broking Services and another one is Commodity Warrants Australia.

 

[wayneL]

You can contact your broker to get the price for warrants. I know there are two companies in Australia can provide this information, one is Commodity Broking Services and another one is Commodity Warrants Australia.

I found it on yahoo finance.

But what I wanted was the terms of the warrant, which |I found via Google.

Speaking about warrants is futile unless one knows the terms.

 

[WilliamKong]

I found it on yahoo finance.

But what I wanted was the terms of the warrant, which |I found via Google.

Speaking about warrants is futile unless one knows the terms.

Warrant is similar to option, which you can also choose you strike price, time of expiry and also bullish or bearish view. You can simply call your broker to give you a price on the warrant contract. I know currently there is only gold option contract available for purchased from some of the online platforms, however, for generally commodities options or warrants, you still need to call your broker to put the orders in.

 

[cutz]

Hi William,

What's the advantage of a warrant as opposed to exchange traded fund like GOLD ?

 

[WilliamKong]

Hi William,

What's the advantage of a warrant as opposed to exchange traded fund like GOLD ?

Buying a warrant provides you a way to leverage your position on gold price, and directly get exposure on the gold price. Exchanged traded fund (ETF) is just like a stock, and the price for ETF does not directly (not 100%) track the price of gold.

 

[cutz]

Buying a warrant provides you a way to leverage your position on gold price, and directly get exposure on the gold price. Exchanged traded fund (ETF) is just like a stock, and the price for ETF does not directly (not 100%) track the price of gold.

Thanks William,

So you can obtain leverage using warrants which leads me into my next question, what's the advantage of levering into gold using warrants as opposed to futures contracts like GC or it's little brother QO.

 

[WilliamKong]

Thanks William,

So you can obtain leverage using warrants which leads me into my next question, what's the advantage of levering into gold using warrants as opposed to futures contracts like GC or it's little brother QO.

You can expose to unlimited gain or loss using future contract, unless you have a stop loss in place. Warrant contract provides you with unlimited gain but limited loss. Both future and warrant give you the advantage of leverage.