Sunday, February 12, 2012

Adding to the 50% Gain in Gold Options!

CCI continues to want to have some small exposure to gold primarily for "insurance" against some wacky market move.  As discussed several times in  posts like this CCI is getting this exposure via options.  This approach attempts to capitalize on the high correlation, but volatility differences in the gold miners etf (GDX )and gold etf (GLD ).   A trade history for this strategy can be found in this google doc

Please note that since these trades were started about a year ago they have gained 50.3%!!!!
Gold is "only" up 26.8% in the same time.  Clearly the leverage has worked in our favor!  What is potentially more important is that less capital was at risk, and if/when the gold market moves against us this approach seems like it should lose less than just holding gold.   Hence, CCI plans to continue using this approach.

With gold slumping this week, a few trades were made::

- Closed the Mar $62 covered calls in GDX.   The portfolio is still long the Mar $155 calls in GLD.  The profits on the GDX options have more than covered the cost of this GLD option.  It is in the money now, but we are going to let it ride for awhile longer.

- Sold 2 June $52 GDX puts and bought 1 June $175 call.  That trade was done for a net credit of $86. As before we will hope to manage our way out of the risk of being short the GDX puts while using the GLD calls to profit from any wacky spike in the price of gold.   Worse case, on a pull back in gold, the portfolio will become long 200 shares of GDX at a price of $51.57.  

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