I ask that question in all seriousness. I'm stuck in a jovial pessimist mode right now on metals. I recently finished a 401k rollover and got my paws on that money for full investment control in an IRA. I have long been a bull on gold stocks. However, I have realized after many losses that I cannot pick individual stocks, so I have opted to buy the index instead. I have recently built a position in GDX and and sold some covered calls. I thought it would be fun to see how I will lose on this trade. There are three ways this can turn out: Good: GDX hovers below my strike price, but above my buy price and I can pocket the premium and repeat. Not so good: GDX blows through the ceiling and I lose my shares at $17 strike while they trade into the $20's at expiration. Still get a win, but lose a ton of upside. Terrible: GDX blows through the floor, I keep the option premium, but lose way more holding the actual shares.
I heard once if your investments are keeping you awake at night you should trade down to your sleep level.
I don't sweat this. It's a small part of my overall portfolio. I've gotten accustomed to short term disappointment in the bullion world. I thought it would be a fun topic to watch unfold.
Mind you I'm still trying to understand the math behind the puts and calls, but my gut instinct says that we've seen the low and there will be a slow trend towards strength in the metals. We have a lame duck president and we're in for a landmark change in the political direction of the country. People are questioning the stock market - the large investment companies are making cautious moves towards safety. I always invest betting longs, never shorts. If nothing else, going into the holidays, there will be an increased demand for gold and silver (jewelry, coins, etc) as gifts will drive some price increases.
A little more upside and perhaps a straddle would be a good play. This combination of a call and a put simultaneously bought around a stalled price ( not yet) allows for gains if the price dumps again or if it skyrockets, but not if it just sits there till expiration. Gold at 1195, personally I see as a decision point as to direction, and a good entry. I wouldn't buy GDX options longer than 3 periods, just 'dink and dunk' and let leverage do well. The length of time is a large part of the cost of an option, so no need to go too long each time. I am currently out of GDX, am not a series 7 license, and I sleep well at night ( except during earthquakes)
When you write a covered call, you are selling your upside potential to someone else while still bearing the risk of the asset going down in price. There's also an opportunity cost; unless you're willing to expose yourself to the potentially unlimited loss potential of a naked call you can't sell the underlying asset to buy something else. A covered call can make sense for income generation, especially on something where you are long-term bullish but don't expect much short-term movement. Without transaction costs, options would be a zero-sum game, which means in real life they are a negative expectation game. So unless you need the income from the premium now or are trying to adjust your overall cost basis, you're probably speculating rather than investing. There's another term for speculating at negative expectation -- gambling. Lots of people, myself included, enjoy gambling. In your case you are betting that GDX will become less volatile than the volatility implied in the price of the option. I offer no opinion on that bet, but it might be worth looking at the chart for VXGDX before making further options-based trades.
Miners are a risky play, because they won't be profitable until after metals become profitable. With metals selling around cost of production and workers demanding higher wages, miners are are hard pressed for solvency right now. It could very well be a great time to buy, but there could also be defaults on the horizon.
Since gold is a few dollars from my straddle point as I mentioned in #6, I decided to go in and buy some long straddle options based on GDX price of 17.00. It was the profits from the call only option I previously carried, so if the worse occurs, GDX stays very close to 17 for the next 37 days, I will be back to base. I Hope for a bull run or a disaster crash
Everything is peachy right now. I won't start losing upside until it surpasses $17. But even at that, if I get cashed out in December, I'll still have made 27% in a four months. I imagine there will be plenty of opportunity to get it back if I lose it.
Well GDX didn't move up so it appears your bet is safe. Today the GDX dropped quite a bit, so referring to post #10 above I sold 40% of the Put portion of the 17 straddle, which paid off most of the CALL portion of it. I left the call portion there as it had lost almost all of its value, but I added a Dec 18th Call of 14, so I still have a straddle, and will benefit if GDX goes at least $1.50 either up or down before Nov.20. Basically, I made 70% off the portion I sold. And even though it is PAPER, it can buy a lot of silver or whatever. Done inside my ROTH IRA, so no taxes due. Nice day. I don't care if it goes down more or up, just as long as it does
Yeah, it's looking like that option may expire and I get to keep the 50 cents. I will go out on a limb here and guarantee a bleak and falling bullion market for the next few months. The only reason I predict that is because I am looking for an exit to dump all my bullion to buy some land. If you've followed my predictions before, you'll remember I have the septic touch when it comes to bullion. I buy, the prices fall almost immediately after.
Where you lookin? I gotta tip if you want it for Northern Nevada. Podunkville is about to be swarming with techies!
Sold the rest of the puts, so just left with the call part of the straddle, which is worth $0 so that trade is over, when combined over 55% return. I sold today as I didn't like the market action. So that was my GDX straddle option play.
Ok, well I think all the hunting cabins in the area are about to be turned into "trendy efficiency condos in the woods" around this place. http://www.nevadaappeal.com/news/lahontanvalley/18914362-113/gilman-talks-tesla-and-switch#
Well, my option expires tomorrow. Looks like this one went down in a textbook fashion. I am now going to go back on everything I said this week, now that the bullion world didn't implode after the fed decision. Next venture is to repeat the trade I just made. I'm looking out to March $17 calls to offer 3 up at 75 cents and leave it out there for a few weeks to see if they fill. If I don't get any movement after a few weeks, I will drop it down to 65 cents and wait for a few more weeks again.
On a side note, I've finally got a couple other stocks I'm going to try to sell some calls on as well. STON and SFM. I've got both of them in positive territory, so I'll put some January calls out there and try to get 1% for each of them.
My latest venture is a stamp collection. A true picker's dream! Much more lucrative than any PM or stocks lately. The only downside is the wife giving me stink-eye about the boxes in our living room. The crown jewel of the collection - so far. The second time I've pulled one of these out of a collection.
