Here is the original trade. Today GDX climbed up to 4% at one point, taking me for a pretty significant loss. I took the opportunity to sell more OTM puts.
Sold 2 more Dec 47 Puts and one 52 put. This makes short puts' premium at 30.6% of my long position. I am also not nearly delta neutral and if I simply maintain my neutrality, I can expect to make nearly 30% - ~7% (the time decay in the long position) by end of Dec.
PG Diagonal
Fairly basic diagonal for now. It represents a lot of properties of a calendar and that is because the premium I got for selling the 62.5 Call was higher than any of the other strikes.
UDN
The government seems unlikely to take any action against the falling dollar and I believe the weakness in the dollar will continue for some time.
Long 100 shares of UDN, Dollar Bear Fund.
9 comments:
I've never seen so much hatred for a stock or ETF (in this case GDX) by those who own it and are actually long. GDX has been nothing but a bitter disappointment since the Fall of 2007. I see no reason for that to suddenly change. If gold suffers a bout of profit taking and the SPX pulls back I feel there is a very good change GDX will drop like a rock well into the low $40's. Good luck on your trade.
You have to keep in mind that GDX is unlikely to drop any significant amount until the overall gold futures drop. Which will not happen until interest rates rise.
Unfortunately, you have people on CNBC saying crap like "Gold could rise to $4000!!! It could be the new monetary standard as the dollar falls!!!" Yes, that makes perfect sense - let's go back to the medieval ages and live by the Spanish gold standards... God I hate CNBC...
Check out 11/12/2007 when the last big gold rally suffered a more than -8% drop. This was caused by a news report that was not related to interest rates. The Fed was actually raising rates at the time. Google 'news November 12 2007' and you will find the Bloomberg article on the first page.
Interesting! Of course there are other factors that affect gold prices apart from interest rates.
Do you think you can post the URL to the article? My google page does not show any bloomberg links... Thanks!
PS: Keep in mind that if the Fed was raising interest rates in 2007, it makes sense that gold would fall. As rates go up, gold goes down - inverse relationship.
By the way, GDX made a double bearish reversal on the Stochastic oscillator - that too on an up day! GDX could DEFINATELY fall.
I'm sorry. I made a typo. I meant to say that in the Fall and Winter of 2007 the Fed was *LOWERING* interest rates.
Here is that article...
Currency Controls Return as Central Banks Fight Gains
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0Droxt1g__E
I guess the megaphone top pattern failed. Hmm. My Dec put options are in pretty bad shape here, but a lot can happen in 3 weeks. Although I would say if downside is coming it needs to come fast before we get caught up in a Christmas rally. Gold is getting some resistence at $1,200 unlike $1,100 which it blew right past. Will it stall at $1,200? Should be interesting. Was tempted to double down on more puts today but if I was wrong once no sense in pushing my luck. A bit too overextended to justify going long either. Best option to me is if GDX is going higher wait for the next pull back then jump in long. Good luck. Sorry this may not work out but you never know. Not over yet.
*sigh* Megaphone top blown with another 2%+ gain for GDX and gold makes a bullish reversal as per the stochastic indicator. On the other hand, GDX is unable to keep the highs from today and I am seeing some weakness in volume.
I sold more OTM puts today, and now I ideally would like to see GDX fall to 50-52, an area which is showing strong support because it was the previous major resistance, is the 38% retracement level, and also is the current 21 day MA.
Any new thoughts on GDX? Personally I am a bit taxed juggling the pros & cons. I feel the real key to any move now will be the dollar. If the dollar continues its breakout (faily likely) then gold will continue to take it badly and the market may also begin to take it badly and so... GDX will take it even more badly.
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