We've been bullish on gold for quite some time here. In some accounts that predate this blog we've been in gold since the 600 level. That has saved our butts. All the premium collection in the world can't pump water out of a sinking boat fast enough. Gold and protective puts have allowed us not to lose money but making money sure is tough as an option premium collector right now. It's time to take a closer look at collecting option premiums on the ultra shorts.
Unfortunately I didn't load up on more gold as I was waiting for a drop to support levels. Now that fiat currency is speeding toward it's demise and we are in a Depression it may be time to reevaluate. As I stated in a post earlier this week: "Other than gold and to a slightly lesser extent, silver, what can you honestly be bullish on? Gold is money. Gold is a hedge. Gold is a safe haven. If we were in caves with clubs, gold could be bartered."
With that being said I am still wary of entering a trade at the top. Everyone and their barber is touting gold. Danger Will Robinson! Sign of a top! Sigh...pros and cons. It is probably safe to sell GLD and SLV puts way out of the money regardless I just hate to do so at a top. Last time gold hit 1K it fell back quickly and hard. We'll just have to wait and see.
The ones making the money in this market are the chart readers and the bears. That's not really my cup of tea but adaptation is essential to survival. Time to dig out my Murphy's Technical Analysis bible.
"Adjusted for Inflation, Dow's Gains Are Puny" WSJ
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I am getting a bit nervous about my ERX March 22.5 options. It is already getting there. Should I get out or wait?
Smart - I think we're all in unknown territory here, however, I hate to sell at the bottom. They're not in the money yet so it's not a losing trade yet. I'm holding mine without much thought but I don't want to encourage you to sink with me if that were to happen.
What puts did you buy? The RIMM puts you talked about would be sweet.
Yeah, if there is time, I can wait. I am a panic sort of person. But your strategy that takes advantage of time would probably be the best. The other thing that encourages me to stay on ERX is that First Coverage weekly sentiment says change of sentiment to bullish on oil and gas. Did you see URE and FAS? I sold at the bottom. Shame on me. I going to start to cry right now. I think there are some manipulators out there who know the psychology of the investors and act in such a way that I do the exact opposite thing. Anyways, all lessons learned.
Regarding writing RIMM puts, I would recommend selling June $20 puts or March $30 puts.
Now, my new account doesn't let me trade anymore since I did a couple of day trades yesterday.
It's really hard to be greedy when others are fearful and vice versa. I'm just getting comfortable with it.
Hey PC, Ryan again. Something intersting (in my opinion) that I observed this week. There wasn't the flight to Treasuries like you'd expect during such a bad week. My opinion, folks are going to gold. If your perception is that things are going to continue to get worse, gold stil might make sense, even considering the recent run, they don't seem to like treasuries much anymore.
Ryan, I agree. That's why I like GLD, GDX, SLV and TBT. Gold might have a pullback like it did last time it hit 1000 but I don't think it can be as severe. There's a lot more fear and confusion this time.
Take a break when indices are approaching prior lows. Thats one way. Another is to scale down positions. Another way is to sell time via other options strategies - eg. calendars, butterflies
T-CR
Your comments that, "Everyone and their barber is touting gold", and ". . . we've been in gold. That has saved our butts", brought up two thoughts.
One, when I answered your survey as to, "what are you doing to protect yourself", I answered "selling lots of premium". The more accurate answer would have been, "selling lots of premium" plus holding lots of gold and mining stocks. That is probably why I haven't used a put hedging strategy. That, and I seem to be able to shoot myself in the foot every time I try to hedge.
Second, while everyone is touting gold, how many have actually bought gold. At the last peak (many years ago), I knew lots of people that bought gold coins, etc. Now the only people I know that have bought gold are on a few different blogs I frequent -- obviously similar thinking. I would like to ask in a large group of people, "How many of you are holding gold right now." I would bet the answer would be a very low percentage. On the other hand, in that same group of people at a new years eve party for Y2K, if you had asked, "How many of you are holding tech stocks", probably most hands would have gone up. So even though gold has had a good run, I don't think it's a too-late-to-the-party situation.
There are also some very nice premiums available on mining stocks right now. Who needs dividends if you can get premium!
Hey PC,
I just finished my first Credit Spread as a test and am getting more excited about them... have you ever done credit spreads?
I put on a Bear Call Spread with SPY with the 81/82 strikes... sold the 81 bought the 82 and received 11 cents on $1 dollar option... bought this spread on Thursday... fri it expired worthless and i pocketed a 13.4% return... i am looking forward to others like this for march exp...
This to me is better than doing a covered call - the short position is like selling the call but against a long call with a strike above the short to define max loss...
if things go well (market is sideways) you can then throw on the opposite (bull put spread) to complete the Iron Condor and pick up addt'l income for the existing margin causing you return to really go up...
cheers, jake
In my previous comment I meant to say $1 margin (not option) sorry... so my broker set aside the $1 and I made my return based on this formula:
Income was 11.82 cents that came from the net credit between selling and buying... I have $1 dollar allocated (or frozen) by broker... since i have a dollar margin & i received a .1182 leaves me with net margin of .8818 - take .1182 ÷ .8818 = 13.4%
hope this helps...
jake
jake,
i have been looking at cr spreads also as i do not like doing cc and np.
what i havent got past yet is the risk reward of the cr sprds. using 10 contracts and round numbers in your example (and i have looked at similar spreads), you get $120 (my broker takes $30 of that), and now have $880 at risk if the trade goes completely against you. am i seeing this right?
i know some local traders who were making out like bandits with condors until things blew up
and they lost many months of winnings and a big bunch of their own dough.
joe
Hi PC,
I just wanted to share with you the result of selling SRS covered calls. I sold the $170 March strike for $0.9, then SRS rallied like crazy and it was trading at around $2. Then I looked for an opportunity to get rid of the trade as I got scared. But, with a little bit of weakness from SRS after a few days, it dropped to $0.75, which was the price I bought it at. I just entered this with 2 contracts to test it. I believe it is a low risk trade as there is double time decay in them, one because of selling the call and the other because of the time decay of leveraged ETFs. For example, in the previous bottom SRS hit $250, but with the new bottom, it cannot hit $100. The only downsides are more margin requirement and the fear of unlimited upward potential compared to limited downward potential of selling put ($0). I find it a good weekly trading tool as the odds of success is high. If you like ERX, you may want to consider selling ERY calls. The other thing I noticed in my portfolio was that EWZ did a lot better than the rest of my naked puts. I am thinking of getting out of my ERX trades as these leveraged ETFs are risky. With the time decay they have built in, the odds of hitting the strike increases, unless you want to try selling ERY calls (such as $100 strike). My intuition says in order to hedge with SPY, we should try selling puts of a regular index energy fund such as XLE. Then, we won't need to buy as much SPY puts to protect it. Do you agree PC?
By the way, 1) I am looking for option strategies that buys and sells a combination of calls and puts to guarantee a gain with loss of zero minus the commissions. Do such things exist? I remember reading somewhere that a complicated combination of option writing and buying can do that and that brokers try it. 2) Is there time decay on non-leveraged index funds? Thanks.
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