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Gold/Mining/Energy : Precious and Base Metal Investing
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To: rubbersoul who wrote (33419)12/14/2004 5:12:22 PM
From: Claude Cormier  Read Replies (1) of 39344
 
Well depends on where you are in Canada or US.

You can buy puts against such index as the $HUI, $XAU of the Iunits XGD in Canada. You can go against a stock if you prefer.

Here is an example...for the XGD

The XGD topped 3 weeks ago near $57.5

stockcharts.com

You could have bought a puts expiring on December 17 with a strike of $55, $52 or whatever and cover some of your losses.

The $52 December puts went from $0.10-$0.20 to $2.00 from mid November to last week low.

The problem is timing when going short term like that.

You can go longer term also and buy now March Puts $55 for $4.55 each. These give the right to sell the XGD at $55 until the third friday of March.

Say gold collapse to $360, the XGD will likely collapse as well to $40 or so giving a value of $15 to each puts. If you have enough puts you can cover the losses of your stocks.

The big risk here is for the market to go against you. If the XGD is above $55 by expiry date, you lose your $4.55. On the other hand, your stocks may go up.

Options are most of the time a losing proposition. But if your timing is perfect, you can save your PF.

Remember that at expiry, unlike warrants, your are forced to either buy or sell the underlying security if in the money and you still own the options. Most options expires worthless. So it means that most of the money is made selling them.

This means that in a bear market, you would sell calls. THat can be a great strategy if you own the underlying security. If, you do not, which is called "selling naked", you can and up in big trouple if the market goes against you.

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