Enigma:
A derivative has just as much store of value as does an index, option, future, future option, swaption, currency, GOLD, silver, bond, TED spread, or any other investment instrument. As I last recalled, there are three Derivatives you can buy on the Montreal exchnage. But the best way is through a hedge fund...
Buy applying mutiple investments instruments into one instrument you create a derivative. When banks report derivative losses, they are offset by brokerage profits. So next time you hear about Chase reporting X amount due to derivative losses, look at the brokerage profits as well. Since When a hedge fund sets up a position, the banks usually aid in the creating of the position. And when they pay off for the fund, the bank reports the derivative loss, and the brokerage part reports the options profits... This is why derivatives fall outside of reporting rules under 10q {is that the right US form???}
So IF you believe that GOLD is a currency, and a commodity, than you can create a zero gold derivative...
First example: {Gold inclusive derivative} Assuming GOLD will drop, and you live in Canada.
Buy a put option on Gold company, & Buy a put option on CDN dollar. Why both? Since companies like ABX are cross traded on the TSE & NYSE, a drop in gold may effect the NYSE equity price, but not the CDN price. Since the CDN dollar may also drop. But by including the CDN dollar put option, you will be cash positive. Obviously you need to know where gold is going, and why! So what if gold doesn't move? That why most derivatives have a BOND, LIBOR RATE, or INDEX option included.
Second: A negative Gold hedge, with ZERO GOLD/stocks included.
If gold is a currency, than you can {And I'm not doing the work for you} but you can buy a currency cross rate option, with a Bond rate option. So as Gold falls, it must be due to REAL rates and safety. So a Call option on USD and USD OPTIONS, with a negative HOME currency cross trade. With a fix t-bill return to offset option purchasing prices. Once set up, you wait for the volatility to rule the day. Why set it this way, and not using GOLD... Cause using GOLD creates an artifically high demand {on a supply demand curve} So in reality you HURT you position.
But a hedge of futures against delivery is the easiest, but is riskier than options.
PS: derivatives are heavily leveraged, and are offset buy specialists at the banks. Only good derivative traders make money. {I trade options only, and for my friends/myself}
PPS: These are a simplistic derivatives.
PPSS: I used a derivative formula, to come to my prediction on where the price of gold would be, and when. As you can see, I'm pretty DAM close on the XAU this week, and the POG breakdown. |
