So far today, we have been trying to buy the February Gold ($1250 strike) call and sell 2 of the February ($1400 strike) call options at a credit of 50 cents. That is not able to be filled at that price, so I recommend cancelling this order and replacing it with buying one February Gold ($1270 strike0 call option and selling 2 February ($1400 strike) call options at a $1.00 per ounce credit, or $100 gross.
The February Gold chart is enclosed.
Sep. 11, 2009
David Hall
The December Mini S&P Index is up 3.50 points at 1041.00 making new highs for the move that began at the March lows. The enclosed chart shows that the steady uptrend in the S&P continues with only mild corrections on the way. I hate to say it, but this is very bullish! Markets can go on like this for weeks and months. For now, I recommend standing aside in the S&P and would be looking for a place to get long on dips. The directional movement indicators are bullish and even the ADX line has turned back up. If you insist on trying to pick the top, which I don’t recommend, you better keep tight protective stops. Trade with the trend or stay out!
Sep. 11, 2009
David Hall
The enclosed chart is of the longer term weekly chart of Gold. Is the inverted head and shoulders bullish pattern breaking out to the upside?!!! This is a Friday, the end of a week on the chart. Today’s close is important.
Sep. 11, 2009
David Hall
October Gold is up $5.40 per ounce at $1001.10 this morning as I write. As long as the dollar continues to trend lower, then gold should have a good strong underpinning. The enclosed chart shows that gold is once again testing up towards the highs in the $1008 area. This chart looks very explosive, so those of you who insist on being short gold should pay very close attention. What would be the catalyst for a breakout? Maybe a weaker dollar, or maybe mining companies lifting short hedges or maybe worries about the world economy or worse yet maybe worries about potential war conflicts!!
There is much written lately in the press about Israel’s plans for Iran concerning Iran’s nuclear ambitions, especially today! It has been written this week, that many envoys that have been to Iran claim that Iran is very close to having nuclear weapon capabilities. The US and other nations in the UN have apparently given Iran till the end of September to end their nuclear fuel program, otherwise there will be more stringent sanctions coming. Today’s Wall Street Journal, front page, says that Russia won’t back any new rounds of tough sanctions. Separately, the local Houston newspaper says that the leader of Israel was missing the other day and there was a big hoopla as to his whereabouts. Now it appears that he took a private jet to Moscow to have what they say were urgent talks with the Russians. The speculation in the paper was that the meeting was for the Israeli leader to discuss the possibility of an Israeli military strike against the Iranian nuclear facilities. Who knows what the meeting were about, but the Russians confirm there was a meeting. I believe that the gold market is up at least partially over this military worry. An actual military action could be a very explosive event for gold and silver. Shorts, be warned! Either keep very close protective stops, or consider getting out of the short futures and buy put options instead. That way, you can still play for a bear market move and keep your risk limited.
The reality is that the trend for gold is up! I like to always play with the trend. The directional movement indicators are bullish and the ADX is rising. Yesterday, we were successful in adding many new gold positions. Here is our current position.
Followers of this letter should be long one October futures contract from $964.00, short one October Gold ($960 strike) call option from $18.50, long one October Gold ($930 strike) put option from $17.00, long one October Gold ($1045 strike) call option from $4.10 and short 2 October Gold ($1060 strike) call options from $2.30. There are about 13 days left until expiration of the October options. Also, followers should be long one December Gold ($1100 strike) call option from $16.30 and short 2 December Gold ($1180 strike) call options from $8.40 each. This overall position has one piece that is participating in the current rally, has the ability to make money on a short term move up from here, and also is positioned to take advantage of a large move up from here. The biggest risk to this trade is if prices go even higher than the strike prices that I have chosen in a short period of time.
This morning, I recommend adding yet another gold trade. I recommend buying one February Gold ($1250 strike) call option and selling 2 February Gold ($1400 strike) call options at a 50 cent credit. This trade, if filled will again credit your account a gross $50 and participate in a very large gold move between now and late January when the options expire. Remember my weekly chart on gold that I have shown over the last few months. On that weekly chart, I have been following the inverted head and shoulders pattern, and I have mentioned that a valid weekly breakout of that pattern should project prices up into the $1300’s per ounce. Since we may be on the verge of that major breakout, I want to get in early to take advantage of that move, because if gold breaks out like I think it can, the up move could be rapid and I don’t want to get into chase mode. If prices never reach $1250 by expiration, then fine, the options expire and you keep the gross $50. The maximum profit would occur at expiration if prices are right at $1400, and profit would be approximately, $15,000, the difference between the strike prices. Breakeven on the top side at expiration would be $150 per ounce above $1400 or $1550 per ounce. So, every dollar per ounce February Gold gets above $1550, you would lose $100. Again, we would be looking to take profits if prices reach the $1400 area.
Sep. 11, 2009
David Hall
In my earlier comment, I recommended buying one December Gold ($1110 strike) call option, and shorting 2 December Gold ($1175 strike) call option at a credit of 50 cents. I had the prices wrong and have made the following changes. Disregard the previous order and now buy one December Gold ($1100 strike) call option and sell 2 December Gold ($1180 strike) call options at a credit of 50 cents. So far, this order is getting filled. This trade is even better. You are taking in a credit of 50 cents, or $50, so if at expiration, December Gold is less than $1100, all the options will expire worthless and you keep the $50. If, on the other hand, December Gold closes above $1100, you make $100 profit for every dollar per ounce prices are above $1100, up and until prices reach $1180. The $1180 price is where the maximum profit potential is at expiration, which is $80 per ounce, or $8000. Your breakeven above that is at $1260 at expiration. So for every dollar Gold is above $1260 at expiration, you lose $100. In reality, I would be looking to take profits if Gold reaches the $1180 area if reached before expiration. This trade is a way to take advantage of a large rally in gold over the next few months in case a major breakout occurs.
Sep. 10, 2009
David Hall
Today, I will begin covering the December contract of the Mini S&P Index. The December Mini S&P Index is down 3.25 points at 1024.75 this morning as I write. The enclosed chart shows that the stock index is testing the upper end of the range that was first reached two weeks ago. The upper end of the range in the December contract is 1034.50 which is also today’s highs so far. The directional movement indicators are still bullish and the ADX line has flattened and is trying to turn up once again. For several weeks now, the talking heads have be warning of a correction or worse, a new bear leg down. Yet, all we have seen so far are 2 to 5% corrections only to be bought into and rallies back to higher highs. This is the classic “climbing the wall of worry” that the old timers talk about. This type of scenario can go on for a long time until some significant news takes place. For now stand aside.
Sep. 10, 2009
David Hall
October Gold is down $9.10 per ounce at $986.80 this morning as I write. The expected pull back in price for gold has begun. The directional movement indicators are bullish and the ADX is rising. I want to find a place to get more bullish on gold soon. Followers of this letter should be lone one October Gold from $964.00 and short the October Gold ($960 strike) call option from $18.50 and long one October Gold ($930 strike) put option from $17.00. There are 14 days left until expiration. We are looking to hold this position as is until the expiration date. In the mean time, yesterday we attempted to buy the October $1010 to $1040 ratio call spread for even money but were unsuccessful in filling the order. For today I have two recommendations.
First, for the short term, I recommend buying one October Gold ($1045 strike) call option and sell 2 October Gold ($1060 strike) call options at a 50 cent credit. In this trade, if at expiration in 14 days, prices are at $1045 or less then the options will all expire worthless and we end up with the 50 cent credit. If prices finish over $1045 then we make $100 for every $1.00 per ounce prices are above $1045, with our maximum gain coming in if prices finish right at $1060, and that would be a gain of $1500. Breakeven on the top side would be at $1075.50. For every dollar per ounce that gold finishes above $1075.5, we lose $100. So, in this trade we have a wide range to make money in, and only lose at expiration if prices finish over $1075.50 within the next 15 days.
The second recommendation for today is to go further out into the December contract. December Gold is currently trading at $992.30. I recommend buying one December Gold ($1110 strike) call option and selling 2 December Gold ($1175 strike) call options at a credit of 50 cents. In this trade, if filled, if prices at expiration finish below $1110 then all the options will expire worthless and we get to keep the 50 cent credit which is $50. If prices finish above $1110, then we make $100 for every dollar price finish above $1110 until we reach our maximum potential profit at $1175, which would be $65 per ounce or $6500. The breakeven on the top side would be a finish at $1240.50 per ounce. Every dollar per ounce gold is above $1240.50 at expiration, we lose $100. My expectations are for a large gold rally going into the end of the year, so this wide swath of profit range is what I am looking for.
Sep. 10, 2009
David Hall
October Gold is unchanged this morning at $998.50 as I write. Yesterday, gold tested the $1008 price high made in February, and then fell back below $1000 by the end of the day. It is not surprising to see a pull back from those high levels yesterday and it wouldn’t be a surprise if prices fell back a ways further, but the technical ingredients are in place for prices to soar to new highs. Yesterday we tried to buy a $1010 to $1050 ratio call spread but were unsuccessful in getting filled.
For today, I recommend doing a similar trade, but this time let’s try to buy the October Gold ($1010 strike) call option and sell 2 October Gold ($1040 strike) calls at even money. If filled on this trade, then at expiration in 15 days, if October Gold is at $1010 or below, then the gross loss would be zero. We would profit if prices finish over $1010 and less than $1070. The maximum profit would be right at the middle point, $1040, and the gain would be $3000 at expiration. Above, $1070 we would lose $100 for every dollar prices finish above $1070 at expiration. I feel like this is a good trade for 15 days. Clearly, if we are in the trade and prices reach up to $1040 way before the expiration, we would probably attempt to liquidate and take whatever profits are available at that time.
The directional movement indicators are bullish and the ADX line is rising.
Sep. 9, 2009
David Hall
Ok, let’s get it over with; will there be any weird things happening today since it is 9/9/9?
Anyway, the December Dollar index is currently down 24 ticks at 77.35 this morning as I write. In case you were wondering, the all time low for the Dollar Index since it began trading in the mid 1980’s was last year, in 2008, down at the 70.698 level. Given the negative comments out of places like China about the dollar recently, there is no reason why the dollar can’t fall back to those 2008 lows once again. Currently, the directional movement indicators are bearish and the ADX line is just beginning to rise. We attempted to buy the December 78 to 76 put spread yesterday for 70 ticks but were unsuccessful in filling. For today, I recommend trying to buy one December Dollar (77.00 strike) put and selling 2 December Dollar (74.00 strike) puts at a cost of 30 ticks or $300.
These options expire in 86 days. This is a ratio put spread. In this case we would be able to be short one December Dollar Index at 77.00 and be able to maximize our profit at expiration if prices finish at 74.00. At the 74.00 level at expiration, the profit would be $2700, ($3000 minus our $300 entry cost). But since we would be short 2 of the 74.00 puts, we would be giving some of our profits away as prices fall below 74.00. Breakeven, at expiration on the bottom side would be at 71.30. At expiration, if prices finish at 71.30, we would have a $300 gain to offset the $300 initial cost of the trade. Below that level, we would lose $10 per tick, so at 71.29, we would be losing $10 at expiration. On the top side, our breakeven would be at 76.70, or 30 ticks below the top strike price of 77.00 to cover the $300 initial cost of the trade. So if prices stay above 77.00, our maximum risk would be $300 for this trade.
I like this trade because it participates in the dollar dropping down towards the 71.00 area of the all time lows. My goal would be to take profits early if the dollar sinks towards the 74.00 area. The amount of the profit is unknown because it will depend on how much time it takes to get to 74.00. The longer it takes to get there, the better for us, because the time erosion of the two short 74.00 puts will add to our profits.
Sep. 9, 2009
David Hall
October Gold is up $10.50 this morning at $1005.90 as I write. The overnight high was $1008.20, which is right on the previous February highs. The moment of truth is upon us. The large break down in the dollar bodes well for the gold bulls. The enclosed chart shows that the directional movement indicators are bullish and the ADX line is rising. Followers of this letter should be long October Gold from $964.00 and short the October ($960 strike) call option from $18.50. This is obviously a successful trade, but it is too bad that I shorted the call option. Oh well. Many books say, and my own personal observation has been, that sideways markets occur about 80% of the time and solid trending markets occur about 20% of the time, so covered call and put writing schemes should work most of the time without leaving much on the table.
This current gold trade looks as if it is one of those 20% of the time trades as we are leaving a lot on the table. That doesn’t prevent us from adding on to our gold position. I recommend putting on a ratio call spread on a price pull back. Try to buy one October Gold ($1010 strike) call option and sell 2 October Gold ($1050 strike) call options at even money (zero cost). That does not mean there is no risk. On this trade, we would make money at expiration if prices finish over $1010 and below $1090. Below $1010, at expiration, we lose zero, the cost of the spread, and above $1090, we begin losing $100 for every dollar gold is above that level.
I believe this is the best trade to enter right now with only 16 days until expiration. The maximum gain would occur if gold expires right at $1050, and the gain would be $40 per ounce or $4000. Right now it would cost about $3.00 in premium to enter that spread, or $300. I believe that with the huge rally of the past few days, that gold is bound to have a good pull back. I want to buy that pull back in price and we will try different strategies to enter every day. If anyone wants to pay a little to put the spread on now, feel free. I just want to wait for a pull back. I may change this order later on in the day.
Sep. 8, 2009
David Hall
