Sunday, January 29, 2012

Locking in Profits in Gold.

As previously posted  here , CCI  established an option position to provide the potential leveraged upside in gold (GLD)  and the gold minors (GDX) in late December.   Since that time gold has gone up  over 10%.  CCI locked some profits in on this position on Friday.  Specifically, CCI cover the 2 Mar $50 GDX short puts and sold 2 Mar $62 GDX calls against the portfolio's GDX position.  This was done for an inconsequential credit of $.014/share. 

More important than the small credits received to establish this position is that this action removed any risk of a pull-back in the price of gold.  (i.e. this trade can now not lose). It also  kept the long $155 March option in gold intact.   This option has increased in value by $9.30.  That is an approximate 14% gain against the total risk capital on the original trade.   Since we are playing with the houses money, we will leave this option open for awhile longer.  It provides a  small open-ended insurance policy against something crazy happening in the world that causes gold to rise rapidly.

Fortunately this same type of trade has now worked four times in a row. As the trade continues to move toward its March expiration, CCI will be looking for the opportunity to put this this type of trade on again in further out months.

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