Wednesday, November 14, 2012

Adding Exposure to Gold

As recently discussed here  CCI has decided to take the overall portfolio's position in gold from what most experts would consider underweight to neutral. Further, long time readers will know that CCI likes to gain portfolio exposure to gold via options.  Specifically, selling puts in the gold miners (GDX) and buying calls in the gold etf (GLD).  The objective of this approach is to gain exposure to any potential spike in gold while reducing the amount of capital consumed.

Along those lines, last week CCI was able to
  • Sell to Open - Three March $45 GDX puts for $574.69
  • Buy to Open - One March $170 GLD calls for $478.73
Summarizing recent activity the portfolio contains the following positions that were established for zero out of pocket costs.
  • Short 3 March $45 GDX puts
  • Short 3 January $47 GDX puts
  • Long 1 March $170 GLD call
  • Long 1 January $175 GLD call
  • Long 1 December $165 GLD call
As of this morning GDX was trading around $49,  and GLD was trading around $167.
  • In the unlikely event that these entities continue to trade near these levels the portfolio for the next few months will break even 
  • If the gold minders fall 5-10% ( i.e. below $47 or $45) the portfolio will start to lose money on the GDX options.
  • If gold increases at all from here the portfolio will start to register gains on the gld options.  If that does start to occur, CCI will look to take off the risk related to the GDX options and harvest gains in the GLD options.

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