The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) determined that exchange traded fund (ETF) investors will now be able to trade futures and options contracts on the SPDR Gold Trust (GLD). Until now, trading derivatives based on a commodity related ETF wasn’t possible, but now increased innovation and competition will allow for new products, thanks to the regulatory shift.
Mutual Fund Wire reports that Christopher Cox, Chairman of the SEC, says approval of these offers allow investors in the U.S. a more convenient and cost effective manner to manage risk. The coordinated effort with the two agencies are expected to show a clear and united voice and enhance legal and regulatory certainty. New options for gold investors who invest their money into gold ETFs will be able to order a put or a call on their investments.
According to Investopedia, a put is an option contract allowing the investor to sell a certain amount of an underlying asset at a set price within a time frame, if they decide to do so. This is usually done on speculation that the underlying asset will drop in price.
A call is an option contract allowing, but not obligating, an investor to buy a certain amount of an underlying security at a specified price, before a certain time. This is indispensable when the price of the underlying stock, or asset, appreciates.
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