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August 15th, 2011 at 4:02 pm
GLD/Kurt – Well that’s kind of like the QQQ trade above except you’d want something in GLD. You don’t care if gold drops 10% but 20% is kind of annoying, right? With GLD at $172 and a pretty good tracker of gold, you can offset 1/2 of a 20% drop in Gold (loss of $360) by spending $525 on the $150/130 bear put spread ($5.25). Since you collect a $1,475 profit at $130 (24% down) and that covers most of a 25% loss on 4 ounces ($1,765), you only have to spend $125 per long for insurance. It gives you uneven coverage on a less than 15% drop but, if you are long-term on gold, that kind of dip shouldn’t worry you anyway, right? The idea is to have the confidence to hang on when you are back to test $1,400. While you wait, you can do light sales like 1/4 the Sept $165s ($2) which knocks 10% off your long cost every time you do that so if you get away with 10 sales, it’s free insurance.
Smooth sailing/Asaenz – Tomorrow we should get a violent move one way or the other on the Sarkozy/Merkel meeting. Expectations are whatever and they will be met or disappointed. I’m not a big fan of betting binary events but I do lean bullish but, if things do go wrong – they might do so violently so I thought it would be wise to half cover our FAS play. If we don’t pop right over the must holds, they will form up as serious resistance and we don’t want that – we need to get back in the top of the zone and not look back! It’s all about how we get there and why – then we have to see how to play it.
Oil/Tusca – As I said earlier, the Sept puts are safer in case oil pops higher as they can be scaled into and rolled. If the market’s going higher, so will oil and look at gold, you can’t bet against money flowing back to commodities.
XLF/Sank – When in doubt, sell half! If you take $900 off the table on half, you can stop the rest out even and still be up 10%. I’m pretty darned confident in that trade outside of a financial crisis that’s worse than what we already know. Of course it’s risky but that would be an awful sell-off for us to not be able to get out with a profit. So, on the whole, I’d leave it and consider that 20% your buffer against losing money and set a going forward 20% trail on the spread. Of course, if we get 40% up with 5 months to go, then it gets silly not to get out (ie. setting tight stops like 10%).
SCO/Rehat – Well the VIX is still high so you get a better roll than you are likely to if things get worse. The Sept $53 puts are $3.60 so at least keep your eye on it and try not to have it go over $1 for the roll. We’re still hoping for a big sell-off but if the market is going to rally – no reason oil won’t pop too.