HUI Chart And Gold & PM trading thoughts...
re: Gold & PM option hedging/insurance strategies
From: SliderOnTheBlack 5/16/2010 1:12:46 PM
Message 26541471
Today's a great example of why you must buy puts for
insurance/hedging into strength vs. on weakness.
Today we actually have some heavy volume selling and
the put options are flying. You don't want to have to
chase puts when they're up +25-30%.
Those Jan. 2011 $90 GLD Puts are up +26% today,
and on high volume with 1800+ contracts traded.
finance.yahoo.com
GLD Jan 2011 90.000 put
(OPR: GLD110122P00090000)
Last Trade: 1.21
Trade Time: 1:17PM EDT
Change: Up 0.25 (26.04%)
Prev Close: 0.96
Open: 1.12
Bid: 1.17
Ask: 1.23
Day's Range: 1.12 - 1.21
Contract Range: 0.79 - 25.20
Volume: 1,816
Open Interest: 32,655
Strike: 90.00
Expire Date: 21-Jan-11
And the Jan. 2011 $40 GDX Puts are up +30% today.
finance.yahoo.com
GDX Jan 2011 40.000 put
(OPR: GDX110122P00040000)
Last Trade: 3.05
Trade Time: 1:22PM EDT
Change: Up 0.72 (30.90%)
Prev Close: 2.33
Open: 2.59
Bid: 2.98
Ask: 3.05
Day's Range: 2.59 - 3.15
Contract Range: 1.85 - 13.40
Volume: 105
Open Interest: 28,714
Strike: 40.00
Expire Date: 21-Jan-11
To reiterate what I talked about earlier, I really like
puts 6 months out, and about 25-30% out of the money
when I'm putting on hedges.
If I was shorting here, I would have bought near month
options and not quite so far out of the money, more like
10-20% out of the money.
I'm cashing in about 2/3rds of my puts here, as I'll never
fail to take "something off" on a high volume, down day with
+25-30% gains.
If this correction continues I'll gradually cash in my
remaining puts and then transition to "selling puts" as
my initial re-entry trade, and then begin to add shares
and/or some "calls" if the correction deepens.
Here's a HUI chart showing the present trading channel
off the Jan-Feb correction. Gold is still firmly in an
uptrend, with the HUI over-sold to gold, and sitting
right on support here.
Right now I'm not trying to time the turn in PMs' to the
exact 'tic... I'm looking for someone to make a mistake.
I'm looking for "discrepancies between price and risk"
to develop.
I think we have solid support at HUI 360-380ish and if
gold even holds the old $1033 highs, gold stocks at
HUI 360-380 would be a "discrepancy between price
and risk" buy.
Dennis Gartman who's a "C/D" level gold timer, as usual,
got way more press than he deserves. So you have some
hedgies following him, and I'm sure JPM et al, into a
little smackdown trade to take gold & silver out of the
headlines.
Nothing fundamentally has changed for gold. And the main
risk remains a major broad market correction - which is
very possible. And that's why you have to be hedged
via puts on gold & Pm shares, long the $VIX (which is up
more than the HUI is down today fwiw), or short the broad
market via SPY/DIA puts etc.
If you played this smart and bought some puts, be patient
and make the correction come to you. Ideally, we'll be able
to pick up another 15-25% on our remaining puts, and then
banks some put "sale" premium and catch a turn with a
re-load of shares and a few calls.
SOTB |
