Wednesday, February 13, 2013

Rolled Gold Miner Puts to June

As last discussed here  CCI continues to get portfolio exposure to gold via holding options in the gold etf (GLD) and funding that via selling puts in the gold miners etf (GDX).

Gold has continued to trade down/flat and with low volatility.   With ony two days until expiration, CCI rolled the short put position in GDX from the Feb. $44 strike all the way out to the Jun $39 strike. The closure of the Feb $44 put essentially closed the February cycle for this approach at a 4.8% loss.  On a relative basis that was worse than the 1.1 6% loss for the gold etf over the same period.  At the same time, the proceeds of the GDX Jun $39 puts were used to obtain a GLD $162 Jun. Call

One of the goals of this approach is to  "Lose less if gold does not spike".  So this approach failed to achieve this objective this cycle.  That is because the correlation between gold and the miners has broken down over the past month.  Hopefully, that correlation will revert to the mean in the near term, and this will continue to balance itself over time.   More generally, it is important to remember that a holding in gold is primarily intended to be a hedge against a global macro event that would like adversely impact the equity market.  Fortunately, that has not happened and that means the vast majority of the portfolio is up over the past months.  Hence, this loss can be "rationalized" as a cost of hedging

Enough of the "rationalizations".  CCI continues to pursue this approach and current holdings are:

  • Short 3 March $45 GDX puts for every 1 long March $170 call. 
  • Short 3 June $39 GDX puts for every 1 long Jun $162 call.
  • Long Feb $162 call which is assumed will expire worthless on Friday.
Both GDX and GLD drifted up after the transaction and are closed the day trading at $41.28 and $159.02 respectively. 

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