Start with the underlying
An option is a contract linked to something else: its underlying. For an option on a gold futures contract, a call gives its holder the right to take a long futures position at the strike price; a put gives the right to take a short position. It is not automatically a right to collect a small retail bar. The contract specification identifies the underlying, quantity, exercise style and expiry. Those details determine what the right actually means. [1] [2]
The right has a price
The buyer pays a premium. A standalone purchased option can expire worthless, losing the premium and transaction costs. Being correct about a general market direction is therefore not enough: the size and timing of the move and the price paid for the option matter too. A fully paid long option has different risk from a futures position created by exercising it. Once a futures position exists, its margin requirements and continuing price exposure need separate attention. [1] [2]
A small numerical illustration
Imagine an option with a USD 3,000 strike, bought for a premium equivalent to USD 80 per ounce. If the underlying futures price is USD 3,100 at expiry, the call’s intrinsic value is USD 100 per ounce. Subtracting the original premium leaves USD 20 per ounce before costs. This is simplified payoff arithmetic, not a quotation. Actual contract cash amounts depend on the multiplier, and exercise or settlement follows the specific product’s rules.
Writing is a different commitment
The writer receives the premium but may be assigned the corresponding obligation. A call writer may have to take a short futures position; a put writer may have to take a long one. Premium received is not a cap on losses: an uncovered short call can have theoretically unlimited loss. An option’s expiry, assignment process and any resulting futures exposure are therefore essential parts of the trade. Buying and writing options are not interchangeable ways to express the same view. [1] [2]
Sources & further reading
Sources checked 14 November 2026. The artwork is illustrative. Reference organisations do not endorse this website. Financial examples are educational, not investment recommendations.