How to Buy Silver Options

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How to Buy Silver Options

Purchasing silver options allows you to get a stake in silver for less money than purchasing real silver or silver futures. Silver options are traded on the Chicago Mercantile Exchange (CME) in the United States, so if you’ve been wondering how to invest in silver, here’s a shorter-term and less capital-intensive method to do so.

Key Takeaways

  • Silver is a valuable metal that has long been used as a money-thing and alternative investment.
  • While it is not always possible to buy and maintain real silver, investors may nevertheless get exposure to the metal via options contracts.
  • Silver calls offer the holder the right (but not the duty) to purchase silver at a set price in the future; silver puts give the holder the right (but not the obligation) to sell at a specified price in the future.

How to Invest in Silver: Calls and Puts

Traders may earn whether the price of silver increases or decreases. Do you think the price of silver will rise? Purchase a call option. A long silver call option gives you the right, but not the responsibility, to purchase silver at a certain price for a set period of time (before expiry).The striking price is the price at which you may purchase silver. You benefit if the price of silver increases over your strike price before the option expires. If the price of silver falls below your strike price, you will lose the premium you paid for the option.

Long put options, on the other hand, grant the right, but not the responsibility, to sell silver at a specified price (strike price) for a set period of time. If the silver price goes below the strike price, you benefit on the difference between the strike price and the current silver price (approximately).If the price of silver at expiration is higher than the strike price, your option expires worthless, and you lose the premium you paid for it.

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Option pricing are also dependent on “Greeks,” which are factors that impact the option’s price.

It is not required to keep your choice till it expires. To lock in a profit or limit a loss, sell the put or call before expiration.

Silver Options Specifications

The CME clears silver options, which trade under the ticker SO. The options’ value is linked to the price of silver futures, which are likewise traded on the CME. There are 40 strike prices available in $0.25 increments above and below the current silver price. The farther the strike price is from the current silver price, the lower the premium paid for the option, but the less likely it will be profitable before expiration. There are 60 expiration periods available, ranging from short-term to long-term.

Each option contract is worth 5,000 oz. of silver. If an option costs $0.20, the price paid for the option is $0.20 x 5,000 = $1,000, plus commissions. In example, the first margin for purchasing a 5,000-ounce silver futures contract is $9,900. Purchasing actual silver necessitates a complete financial investment for each ounce bought.

Options trading necessitates the use of a margin brokerage account that allows for option trading. This service is provided by Interactive Brokers, TD Ameritrade, and a number of other brokers.

Silver options prices and volume may be accessed on the Quotes area of the CME website or through an options broker’s trading platform.

The Bottom Line

Calls and puts are less capital-intensive ways for traders to benefit on silver uptrends and downtrends, respectively. If the option expires worthless, the sum paid for it (premium) is forfeited; risk is confined to this cost. Trading options necessitates a margin brokerage account with options access.

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Investopedia does not provide tax, investment, or financial advice. The material is offered without regard for any individual investor’s investing goals, risk tolerance, or financial circumstances, and may not be appropriate for all investors. Investing entails risk, including the possibility of losing money.

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