Iraq to benefit market 'puts,' gold
False rallies don't eliminate dire fate for stocks
>>But the best bet on an imploding stock market - not just because of Iraq but because of a dollar poised for a large drop and an economy built on $30 trillion of credit cards and other government and corporate debt -- just may be a small amount of money on put options for the exchange-traded Diamond Trust, which represents the Dow.<<
By Thom Calandra, CBS.MarketWatch.com
Last Update: 10:49 AM ET Sept. 17, 2002
SAN FRANCISCO (CBS.MW) - For those who realize Iraq-relief stock-market rallies are destined to evaporate, several investments offer potential for profits.
These include short-selling the Dow Jones Diamonds (DIA: news, chart, profile) or one of the high-priced members in the price-weighted index, primarily 3M and Procter & Gamble.
With the war premium momentarily disappearing from crude oil and related energy futures contracts, and from the haven of gold, the most daring of investors can go long heating oil, gasoline, crude oil and gold futures.
Or, if they wisely refuse to leverage up in the chancy futures pits, they can buy call options on the stock market related indexes that link to oil, primarily the CBOE Oil Index (OIX: news, chart, profile). Or go long the gold-related indexes, such as the Gold Bugs Index of un-hedged producers (HUI: news, chart, profile).
Investors these days also have at their fingertips a closed-end fund that holds gold and silver: Central Fund of Canada (CEF: news, chart, profile). Or they can take the word of Barrick Gold (ABX: news, chart, profile), once the largest market-capitalization gold miner but now second to Newmont Mining (NEM: news, chart, profile), that the Canadian company intends to become a true growth stock by reducing its insanely foolish program of forward-selling gold to hedge production.
The most conservative investors, realizing that Tuesday morning's brief rally in stocks and brief decline in oil prices are mirages, can also increase cash positions and buy more U.S. Treasury bills and notes. These are the folks who realize the United States has already reserved 20 air corridors between here and Iraq, or four to five times the usual number.
But the best bet on an imploding stock market - not just because of Iraq but because of a dollar poised for a large drop and an economy built on $30 trillion of credit cards and other government and corporate debt -- just may be a small amount of money on put options for the exchange-traded Diamond Trust, which represents the Dow.
The Diamond put options, which are instruments that gain in value as stock indexes decline, include ones that go out to next June and look for the Dow to be about 2,000 points lower. One of them is the DAVRL contract(DAV=UR: news, chart, profile) (DAV=RL: news, chart, profile), which trades right now for $2 apiece.
For those who want to zero in on individual Dow members, there are put options on nearly all of the member Dow Jones stocks. There are 3M January puts, the MMMMNs (MMM=MN: news, chart, profile), that look for the manufacturer's $120 stock to fall to $70 by the third week of January 2003. They sell for less than a dollar.
cbs.marketwatch.com |
