Wednesday, October 7, 2009

Profit From the Volatility in Gold

Gold has spiked significantly this week, and it was a very unusually high move. The gold bugs are rejoicing and partying on the streets. Talk of the collapse of the U.S. Dollar as a reserve currency is everywhere. Miner stocks have shot up.

Reality will set in eventually. This is another prime situation for straddles. Below you will find some straddles and strangles for some miners that have gone through the roof.


(please click to enlarge)

Note that they are October's, thus very risky.

To be updated during the day.

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Orion said...

These straddles you mention, are they for selling?
Thank you

The Shocked Investor said...

For buying Orion. October's are of course very risky, mainly a play for very short term.

crk said...

In these short term plays, what is the best exit strategy to use? I mean when do you cut losses OR when do you take your profits?

The Shocked Investor said...

crk, that depends on each person. You need to have a hard rule, for example, get out if losses are 30% of invested capital, or whatever your threshold is. If it didn't work, it didn't work, get out. With options the loss can be 100%. The more pleasant problem is what to do when you have profits. For that I prefer to cash in on he winning side and leave the losing side running. It depends on the stock too, if you are ahead 10% in a matter of day, you can just cash in. That's a very healthy ROI.

If you have not done this before, you need to paper trade first or keep positions extremely small.

crk said...

Thanks for your ideas. How do you add the time decay factor to your decision? if suppose it doesn't hit your your target, how long before the the option expiration do you typically wait before exiting?

Many Thanks for your inputs.

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