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A gold future is not only seen as a hedge against inflation, but it is also seen as a hedge against softening foreign currency values, in this recent case it is the declining Euro. Europeans are investing in commodities such as gold and silver because, quite frankly, it looks as if the Euro will not have a value in a year's time.

But, before you go jumping into trading gold future contracts at these historically high prices, you have to take a step back and realize that the gold future contract is at an unprecedented price. How much higher can it go? How can you predict the price of a gold future contract accurately without being able to analyze historical data?

One of the best, and most effective, ways to approach the current gold future market is to sell options. When you sell an option, the option purchaser pays you a premium for that option. Now, when an option expires worthless, the option seller (that's us!) keeps the premium that the option buyer had paid.

You may be asking yourself: "What exactly is the benefit of this strategy?". The benefit of selling gold future options is probability. The Chicago Mercantile Exchange estimates that nearly 80% of options expire worthless. As an option seller, you are able to use the "decaying asset" attribute of an option to your advantage.

Also, when you sell an option, you pick a point in the market (also known as your strike price) where you think the market WILL NOT go. This is much easier than trying to predict where a market WILL go. In short, when you are able to pick a point in the market where you think the price WILL NOT go:

1. The futures contract can move away from that price.
2. The futures contract can move sideways.
3. The futures contract can even move against that price, so long as the underlying price doesn't touch the strike price upon expiration.

Now, of course, when you sell a gold future option there are inherent risks. When you sell an option, you assume the same risk as if you bought or sold a naked futures contract. But, option prices will generally move slower than underlying future prices, which gives a trader more latitude to exit a position in the case that the market moves sharply against them.

ATTENTION TRADERS AND ASPIRING TRADERS:

To learn more about the different strategies used in trading and investing in the markets, a free trading eBook, and a free trading platform, visit: Future Options Trading.

To learn more about selling options in the gold commodity market, visit: Gold Future.