Headline - Gold On Sale
The incredibly market volatility last week caused our Cocoa trade to get stopped out.
Gold however is looking even more attractive at $1710. Gold has 4 days to go above $1772 and make it the 11th year in a row of positive return for the Gold trade from 17th November to 2nd December.
The continuing dollar strength may hit Gold in the short term. However, this is the reason our options are with 2013 expiry. Basically it means if you buy the Gold or Silver options in our portfolio you will have 13 months of time value to enjoy the upside movement in Gold at a fraction of the price of buying the Physical gold or the ETF.
The risk associated with options is that you have counterparty risk in that the other party could default although this has never happened. You do not have these risks with the physical. You also have time risk in that the price must move up before the option expires. You also pay a premium for the leverage.
The benefits are that you can close the position at any time and your downside risk is limited to the capital invested in the option. You also have substantial leverage that cancels out the risk and makes options a very useful part of a portfolio.
The market has moved quite substantially today as a result of Black Friday and returning confidence in the Eurozone. While I am convinced this move will be temporary I still think we will see an end of year rally in Equities.
The VIX volatility index is down 6% today. Giving legs to the Equity bull market and bringing traders back in. The VIX stands at 32.54. Many traders stay out of the market when the VIX is above 30. However it's been above 30 since August so traders seem to have increased their risk profile.
We continue to add to our Short Bond Option TBT with the December expiry. Bonds act inversely to stocks. A stock rally would see a drop in Bonds and make our bond short trade profittable. We have 3 weeks for this trade to turn proffitable.
With regards to stocks we like retail, pharma and tech. Many of the stop losses were trigerred during last weeks volatility. We are happy to add to te positions in the portfolio when they are below the buy level. Our updated portfolio is below.
May you all have a Golden Season again this year.
"Whatever happens commodities win"
Best,
Robert McManus
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