Since CCI views gold as primary a hedge against a down market, and the market has pretty much been going straight up this year, a drop in gold should be expected and.... it has indeed dropped! With only three days until expiration, CCI rolled the short put position in GDX from the Mar. $45 strike to Apr. and all the way down to the $36 strike. The proceeds from the sale of these puts was used to buy an Apr$156 call in GLD.
The March GDX option lost a whopping 15.3% of the cash secured value. That is about twice the drop of just holding gold. Hence, this strategy has not met its objective of losing less than gold when the price falls. This discrepancy is because the gold miner stocks have gone down a lot more than gold . Hopefully the correlation between those entities will revert to its mean over a longer time period, and the portfolio will recoup that underperformance at that time.
CCI continues to pursue this approach and current holdings are:
- Short 3 Apr $36 GDX puts for every 1 long Apr $156 call.
- Short 3 June $39 GDX puts for every 1 long Jun $162 call.