I’m late to the gold game, but I finally got back in. For months I expected the dollar to strengthen on the weakening euro. Now I’ve come to accept the fact the US has to weaken the dollar to have a chance of getting a handle on our debt. This weakening will just continue to help gold rise in price.
I plan to open a 10% position in gold (using ETF GLD), but with this being my first step in creating my position I only wanted to start with 5% and plan to add to it soon. I bought 35 GLD shares at $165.91 and paid $5,807.85 with commissions or $165.94 cost per share. I did not use an option to enter this trade because I want to be able to get in and out exactly when I want to without having to worry about the fluctuations in volatility/premiums. Of course if I had used an option to enter this trade I’d also have had to used a 100 share lot. I’m not quite that bullish yet on GLD in the near term. I think it has a lot more positive days ahead of it, but would rather double up on my position on a correction in the yellow metal. The worst case would be that GLD does not correct any time soon and my purchase from this morning just makes money.
If GLD does continue to climb I’ll plan to add to my position at even higher prices, but with a cushion from this purchase by then. This is actually the first in a new series of trades I plan to make without options. I’m going to take a somewhat small portion (maybe 1/3 or less) of my account and use it to buy actual shares (I know, what a crazy idea). My trades will be 100% based on the charts. I’m not going to abandon options, but I just see an opportunity to manage my risk better. If I do well with this new plan over time I’ll end up increasing my allocation to this portion of my account (maybe up to 1/2). I’ve been monitoring these types of trades “on paper” for a long time and have found that I just don’t react quickly enough with options to take advantage of these moves in the charts. I believe I’ll act quicker on the shares than I have been on the options. I lose the cushion from a fall, but gain liquidity.
The longer dated options I sold were good in theory, as long as there wasn’t a black swan event that knocked prices down 10% in a couple of weeks. It was a probability trade and for now that’s not working out on a lot of my trades. I haven’t exited any positions yet, but am considering lightening up significantly and getting back in when the charts light up the green signal again. The only things holding me back are the expectation of a snap higher (maybe briefly though) any day now and the potential infliction of the wash rule. I don’t want to dump a deep in-the-money put only to change my mind the next week and be locked out for a month. I could always use substantial different ETFs, but haven’t decided what would replace each current ETF yet. If I had to come up with another reason not to sell yet, the premiums for far out-of-the-money covered calls look descent right now. A leveling out soon, even without any rally, would set me up to bring in more premiums while I wait out the potential recession. I’ve taken in a lot of good premiums from the options I’ve sold this year and would hate to give back some of this time value if there isn’t a lot of downside risk left in the markets.
As oil gets trounced I’m actually not worried about my UCO position. I’ll add to it when I think we’re close to a floor and ride it back up. I have no doubt oil (WTI) will be over $100 a barrel again. It might not happen this year, but it will happen and I’ll be long more shares by then to profit from the ascent.
Hello.. is there a reason why you would not use deep in the,money call instead of buying stock?
Khan, that’s a good question. I know gold is going to roll over at some point. I didn’t want to be stuck with a wide bid/ask spread when I want to exit. GLD is so liquid that I’ll be able to get out when I want, easily. Also, I don’t want to be forced to exit early when the contract expires just in case gold’s rally keeps going. Lastly, I didn’t want to see GLD outrun my strike if this monster rally continues.
If the market wasn’t so volatile I might not have gone this route, but it seemed right when I made the trade.