Go for the Gold and get out of the FordUncategorized || ||
There has been a lot of talk and activity around the recent dip in the market, some of it associated with
apparent political uncertainty. There are two items that stood out to me, among the morass of items that
one can find in the financial news, amomgst the blogs and gossip mongers.
The first is all the chatter and increased long positions connected to gold and gold-related funds (ETFs, or Exchange Traded Funds). Essentially, increasing numbers of people are convinced gold will go up over the short
term, and are placing bets on this conjecture. There are two ETFs in particular that are seeing a lot of
activity and press. One is Unfortunately, we could not get stock quote GLD this time., and the other is Unfortunately, we could not get stock quote GDX this time., Market Vectors Gold Miners ETF.
We can only discuss a few of the schemes that are floating around having to do with options on the GDX stock.
And keep in mind all of these trades are ‘dated’: by the time you read this, the situation may have changed already in the market.
Tyler Craig at Investor’s Place gives a suggestion for exploiting the low volatility of the stock here
. Volatility is basically how fast the stock is expected to move in the future. Low volatility means low
price for their options. So it would then make sense, if you think the stock is going to climb, to buy call options above the current price of the stock, specifically the October $23 call options. The current
price for these can be found here, at this time about $1.02.
You’re essentially purchasing a contract that gives you the right to buy 100 shares of GDX on or before Oct 19
at the price of $23. And here is yet another long suggestion on gold.
The most recent notable entry comes to us from Schaeffer Research where we see a large player in the market has apparently bought Jan $130 calls of GLD for $2.08 and sold the same number of Jan $115 puts for $.82. So he/she is spending $.26, and since the options are for 100 shares, that’s $26 for one option. It will start to make a profit as soon as the stock hits $130.26, on or before the January expiration.
Apparently there was also a recent surge in buying call options expiring 8/25 at $125, and also some people going
in the opposite direction, buying puts at $120.5 and $121 for the same expiration. So some people think it will
go above $125 by Friday, and others think it may sink below $121.
Finally for a historical perspective, here’s an article from way back in 2014, at a time when people were considering going short on gold. Volatility was high at that point, and the author suggests betting that the stock will stay within
a range around the then-current price of the ETF.
This is basically a ‘credit strangle’: he’s selling a put underneath the stock, and selling a call above the stock with the hope that they won’t be excercised by expiration, since a call that’s above the stock price is
worthless (we want to buy low), and a put below the stock price is also worthless (as we’d like to sell high).
If increasing instability in the world is going to cause investors to flee towards gold, it appears there are also some longer-term trends developing with the cyclical stocks, especially car manufacterers, and the folks who
write the loans for these. Ford Motor Company Unfortunately, we could not get stock quote F this time. is a fascinating example of a stock which,
although it pays a good dividend and has many great products, seems to be facing long-term headwinds associated
with a diminishing middle class, a ‘stay at home’ economy, auto-driving cars, a subprime lending crisis, and a glut of new and used sedans coming off leases. Here’s a good article from Seeking Alpha describing the situation
nicely: Car Mageddon – Use options to limit downside and catch upside
The author recommends buying cheap put options for far into the future: he claims to have bought 400 units of
put options at $3 expiring January 2019, for $4. He bought 100 contracts, which cost him $400.