There’s Gold in Them Thar Options!

There’s a new type of Gold Mining coming into vogue.

Date: October 20, 2017:
Almost everybody likes the idea of using a home computer to make money.  There is a way that Selling Commodity Options on the precious metal can likely put some cash in a trader’s account.

The FEB18 Gold Futures are currently trading near $1285 an ounce.  The DEC17 Gold rallied to a 14-1/2 month high in September (last month), since – the US Dollar Index sank to a two-and-a-half year low.  The fact that S&P 500 is rallying to new highs and the FED cites extremely low inflation – are bearish factors for gold over the next few months.  Global inflation is very in-check everywhere and new domestic tax cuts are virtually certain within the next 6 to 8 months.  With gold now just below $1300/ounce, it seems unlikely that gold prices will climb above $1500/ounce within the next 67 days.

Why 67 days?  Because there is a 98.47% chance the FEB18 gold futures prices won’t climb over $1500 by then – at the expiration date of the $1500 JAN18 CALL options. (The JAN18 1500-strike gold CALL options use the FEB18 contract as the underlying.)

I sold the options for $80 each- and if gold isn’t above $1500 an ounce on that expiration date, I get to keep it all (except a $3 commission.)  The initial margin deposit was $649.   That a whopping 12.3% return in 70 days; annualized that is about 64% a year ROI.  Is there risk in this trade even though it is a high probability trade?  You bet there is.  But it is a calculated risk.

Could interest rates rise during the next 67 days? Sure – but only 1/4 of one percent – and with a new FED chair coming in soon, it seems NOT likely to happen – and even if it did, rates are now so low that it would make little difference IN THE SHORT TERM.

The new budget just passed the House, and new tax cuts seem to be coming soon, we just don’t know exactly when.  Such tax cuts  are perceived to mean more growth in the GNP, more money to invest becomes available, more money for citizens to spend, and a boon to businesses and employment.  While all this certainly won’t happen in the next 67 days, the chances of law makers abandoning all of those things seem very unlikely – unless they all quite their plush jobs and go home.  This option expires the week before Christmas.

As you can see in the chart above, the high for this contract this year has been only 1365.8, and the low 1211.1.  For gold prices to rush up over $1500 in the next 67 days, for a number of reasons stated here, seems a very slim chance indeed.  If gold should start to move up unexpectedly, there is plenty of “room” to exit this  trade without paying dearly.

The beauty of this type of trade is that I don’t have to guess WHERE PRICES WILL GO, I merely have to portend where prices will NOT go – a much easier task than the “target shooting” type trading that can be so risky.  The high leverage of commodity trading allows commodity option traders real advantages over stock option traders (more premium per risk.) 

If you want to know more about this type of trading: selling very far out-of-the-money options on commodity contracts, consider a FREE 60-Day trial to my TIME FARMING TRAINING BULLETIN.  My new book is a short read that explains this type of investing and has numerous examples written in easy-to-understand plain language.

This example is for illustration only.  I am not a trade advisor; I’m a writer and educator.  This type of trading can be very risky.  I recommend everyone who wants to know more, practice these trades in paper-trading and follow along by reading my educational newsletter that explains these trades in great detail with pictures and charts.

In my new book and in my Time Farming Training Bulletin, all the trades and examples are conveniently displayed with full illustrations, pictures, and charts.  It’s an easy way for traders to learn to use this smoother-better-smarter method to make money. Click on this link to read more about my new book and explore the Table of Contents with Amazon’s “Look Inside” feature:

Thank you, – Don

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The commentary and examples are for teaching purposes only and are not intended to be a trading or trade advisory service. Any investments, trades, and/or speculations made in light of  the ideas, opinions, and/or forecasts, expressed or implied herein on the web site and/or newsletter, are committed at your own risk, financial or otherwise. Trading with leverage could lead to greater loss than your initial deposit. Trade at your own risk.   Investors and traders are responsible for their own investment/trading decisions including entries, exits, position, sizing and  use of stops or lack thereof.  This is not a trade advisory service and is for educational purposes only.

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