I'm not going to talk about the Fed.
I already told you last week what the announcement would be and, in our Option Opportunities Portfolio over at Seeking Alpha, our outlook on the Fed combined with the activity we were observing over at the COMEX led us to go long on gold as it fell down to $1,100 in addition to the obvious futures trade idea we had in PSW's Live Member Chat Room to go long on Gold Futures (/YG). For the futures challenged, our trade idea was simply to use the Gold ETF (GLD) instead:
- Buying 10 of the GLD Oct $104 calls for $3.58 ($3,580)
- Selling 10 of the GLD Oct $108 calls for $1.39 ($1,390)
That net $2,190 position pays back $4,000 if GLD is over $108 at October contract expiration (16th) but already the Futures have paid off like a gold strike as we shot up to $120 for a $664.40 PER CONTRACT gain. The margin requirement on gold futures is just $1,826 per contract, so it's a nice, efficient way to play! Meanwhile, in our OOP, GLD is already at $107.31 and the spread is at net $2,580 – up $390 so not quite as exciting as the Futures trade but that one stopped out already so we'll see which makes more next month.
This stuff isn't complicated folks, we read the news and, when we think we know what's going to happen next AND we can see an opportunity to make a nice trade to take advantage of it – we go for it. Ulike Rothstein, however, we don't "bet it all" because we are constantly presented with opportunities like this and, since we understand the value of "How to Get Rich Slowly," we are very happy to CAREFULLY work our way in and out of positions that maximize our gains while minimizing our risks.
Our Option Opportunity Portfolio was originally called the 5% (Monthly) Portfolio with a goal of making 5% each month but the title tested as confusing so it was renamed. I am, however, happy to announce that, as of yesterday's close (day 38) we were up 9.8% already – almost two months' worth of gains in 6 weeks!
You don't need to bet big to win big, you are far better off betting smart. Since we were long on gold for what we thought was good reason, we also went long on Silver Futures (/SI) above the $14.50 line. Already they are close enough to our goal of $15, where silver contracts pay $50 per penny so over $2,250 per contract on those above $14.95. We did not make a silver option play, however, as we already had the GLD trade and our Option Opportunities Portfolio is fairly conservative.
Today we are being conservative with our gains from the last few days, which have rocketed our Long-Term Portfolios value as well as the OOP so we're going to pick up some hedges like the ones we described back on Sept 4th in "Hedging for Disaster". In fact, in that FREE post I published our OOP positions and the open ones were flat at the time and have since gained almost $10,000!
These are the last two weeks to sign up for the Options Opportunities Portfolio at the introductory price of $99/month – it doubles on October 1st and 6 more weeks like this and we'll double it again – so I'd go annual!
That's right, how many people can point to a portfolio with 7 positions that they published two weeks ago that are up 10% as a group today? Actually, it's the whole portfolio that's up 10%, the positions are up much more than that since they were only using a very small amount of cash ($16,000). That's what I mean by CONSERVATIVE – we don't risk a lot of cash and that keeps us flexible – able to turn on a dime with the market.
Overall, the S&P (SPY) has made little progress since Sept 4th – it's up about 2.5% but the leverage we get by using our option plays enhances our gains considerably. Still, what has been done can easily be undone so, as a rule of thumb, we like to put about 1/3 of our winnings back into hedges to lock in our gains.
2 of the 3 hedges we suggested (TZA and SQQQ) are around where they were two weeks ago and we still like them for protection. In fact, because we used our "Be the House – NOT the Gambler" strategy to set the trades up, even though (TZA) itself has fallen from $12.34 to $11.05 our TZA spread has GONE UP to net $1,570 (up $170 or 10.8%) as of yesterday's close DESPITE US BEING WRONG!
How is that possible? Because we SOLD premium to other suckers while we took conservatively bearish positions underneath them. Since there were only 6 weeks to the trade, two weeks have eaten up the premium we sold faster than the Delta (net change) of the position has punished us for being wrong (so far).
It's still a good entry at $1,570 because the payoff is $6,000 if TZA gets back over $13 into October expirations and this is not a BET, this is INSURANCE against a downturn that protects the ill-gotten gains we already have in our bullish positions. As with life insurance – we don't WANT to "win" the money – it's just there if something bad happens…
I haven't made an official pick yet but we'll be sending out alerts to our various Members well ahead of the Fed meeting as well as tomorrows quarterly Quad Witching Expiration of index options, stock options, index futures and single stock futures (rarely played). Because futures and options investors must close out of their positions on those days, they often witness increased trading volume.
Strap yourselves in with those hedges – it's going to be a wild couple of days!
