It is not the purpose of this Guide to teach option theory and trading, but simply to explain the workings of the precious metals markets. Therefore, there are no definitions of puts, calls, Asians, Americans, barriers, path dependant options and so on.

However, it is worth noting that the majority of the option products that are available in the foreign exchange markets can be quoted in the precious metals markets as well. Gold, silver, platinum and palladium options are normally expressed, as in other markets, in terms of volatility in discussions between market makers. If a customer has a preference, this can instead be quoted in terms of USD per ounce – or, indeed, in whatever currency the strike price is set in. The standard, if not specified, will be for a European option.

Precious metals options are normally quoted with a ‘New York’ cut – in other words, they expire at 9.30am New York time (note that this is not always the same as 2.30pm London time). However, traders in Asia may prefer a time during their normal business day, in which case a ‘Tokyo’ cut may be used. These expire at 3pm Tokyo time. The standard expiry date for interbank options is two business days, in London and New York, prior to the end of the month for USD denominated Loco London options – in other words, when the spot date is the final day of the month. Clearly, customers can express other days as their preference, given that this

is an OTC market, as well as the currency that the metal option is quoted against.

‘Cash-settled’ options are those where the investor does not wish to take, or make, delivery of precious metals, in which case, at expiry, the option is immediately closed out against the spot market. In the majority of cases, it is preferable to do this against a benchmark – in other words, the various LBMA precious metal official benchmarks/auctions, which will not generally be at the same time that the regular options themselves expire. Hence, it should be clarified prior to trading whether the option is intended to be cash settled at maturity.

Due to the relative paucity of data, there are no options on precious metal interest rates.