Topic Covers | Dealer options,Division
Dealer options can be divided into two groups:
Options for selling on the retail market to meet the private speculative demand. Initially, obtaining such options was associated with increased risk, because in the second half of the the 70-ies in the USA there were a lot of cases of fraud involving options because of high market volatility. The reaction of authorities was to introduce new requirements to organization of trading dealers' options. Particularly, it was foreseen to deposit gold in the custodian bank and the option bonus for the dealer before the execution of the option or after the expiration of validity. Gold trading options. The subjects of the deals are gold miners, industrial customers and large-scale dealers.
Deals with such kind of options feature large volumes and longer period of validity. The purpose of such options is to smooth the price risk of producers and consumers of the metal, in other words, it is not the speculative motive, but hedging of the process participants. Unlike stock options characterized by possible transparency of information concerning its key parameters, dealers' options are sold either directly or through a dealer network. Anyway, all the deals with options must be accompanied by appropriate accounting which ensures fulfillment of the option contract terms and reduction of participants' risks.
The volumes of trading futures and options (paper gold) considerably exceed the turnover of buying and selling the noble metal (the latter amounts to only a few percent). At the same time, being the second to the economic meaning of physical gold market, industry of derivatives have recently had a huge impact on the underlying asset price dynamics, because of the superiority of volume. The participants of gold stock deals are interested in high market volatility, because it gives opportunities to maximize the profit. These actions of speculators often sharply increase the movement of the market.
Hence, there were the fantastic rise of gold price in 1980 and its rapid drop in 1997 – 1999.
Dealer options can be divided into two groups:
Options for selling on the retail market to meet the private speculative demand. Initially, obtaining such options was associated with increased risk, because in the second half of the the 70-ies in the USA there were a lot of cases of fraud involving options because of high market volatility. The reaction of authorities was to introduce new requirements to organization of trading dealers' options. Particularly, it was foreseen to deposit gold in the custodian bank and the option bonus for the dealer before the execution of the option or after the expiration of validity. Gold trading options. The subjects of the deals are gold miners, industrial customers and large-scale dealers.
Deals with such kind of options feature large volumes and longer period of validity. The purpose of such options is to smooth the price risk of producers and consumers of the metal, in other words, it is not the speculative motive, but hedging of the process participants. Unlike stock options characterized by possible transparency of information concerning its key parameters, dealers' options are sold either directly or through a dealer network. Anyway, all the deals with options must be accompanied by appropriate accounting which ensures fulfillment of the option contract terms and reduction of participants' risks.
The volumes of trading futures and options (paper gold) considerably exceed the turnover of buying and selling the noble metal (the latter amounts to only a few percent). At the same time, being the second to the economic meaning of physical gold market, industry of derivatives have recently had a huge impact on the underlying asset price dynamics, because of the superiority of volume. The participants of gold stock deals are interested in high market volatility, because it gives opportunities to maximize the profit. These actions of speculators often sharply increase the movement of the market.
Hence, there were the fantastic rise of gold price in 1980 and its rapid drop in 1997 – 1999.
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