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Gold/Mining/Energy : Big Dog's Boom Boom Room
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To: kodiak_bull who wrote (43916)5/12/2005 3:43:13 PM
From: Umunhum  Read Replies (2) of 206097
 
I will go up the ladder far enough so that I am paying less than 50 cents for each dollar of strike price. I want maximum leverage.

I don't quite understand this

For example right now (these prices fluctuate)Jan '07 XLE calls

Strike price 39 cost 5.9
Strike price 40 cost 5.4
Strike price 41 cost 4.9
Strike price 42 cost 4.4
Strike price 43 cost 4.1
Strike price 44 cost 3.7
Strike price 45 cost 3.4

If you purchase the 41 strike instead of the 42 you are paying an extra 50 cents for a potential $1 of intrinsic value. If you purchase the 42 instead of the 43 you are paying 30 cents for a potential of $1 of intrinsic value.

If I were going to buy right now, I would buy the 42 strike price.

If XLE actually can get to $80, you can get the biggest bang for your buck by buying the 07 55 calls for $1.40. At 80 that would give you $25 per, or a neat little 18 times.

True. But then my break even would be $56.4. I would like to keep my break even as low as possible. I am planning on buying several hundred options and so this is a large portion of my net worth. If I were just going to buy 10 to 50 options I would probably go further out on the strike price.

To Tom Pope
I agree with your thesis, with the caveat that if things go really bad not even the oils will be a safe haven.

If things go really bad oil will probably take a hit initially. I believe the government will start lowering interest rates again and sacrifice the dollar, which will cause oil prices and stocks to skyrocket. I subscribe to Puplava's view that the government is going to hyperinflate.

If you do the math - again speaking in generalities - the government takes in about 2 trillion dollars a year in revenue and spends about 2.8 trillion. I have read that 2/3 of the government spending is non discretionary or approximately 1.6 billion. (this represents Medicare, Social Security, Interest on the debt, etc) So that leaves 400 billion for discretionary spending and the government is spending 1,200 billion. Does anybody in their right mind believe the budget will ever be balanced? Especially with peak oil right around the corner? We are not going to be able to grow our way out of this debt. Then factor in that our trade deficits are running right around 60 billion a month. That means that every American (there are about 300 million of us) is purchasing about $200 per month of foreign goods more than we sell. This is more than the average Chinese worker makes in a month and we expect them to continue financing us? This is unsustainable. The dollar will be sacrificed and hard assets will benefit.

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