I am on the defensive! I have to protect my profit for this year.
It is not the perfect adjustment but I am cautious. Risk control procedures are kicking in.
Long term I am still very bullish on gold and silver.
Take the example of SLW. I rode happily naked at 25 since beginning of October and it went > 36 last week. I was exuberant. On Friday, last week it issued a clear engulfing bearish candle which is a short term bearish signal.
So, what did I do?
I collared the stock. I added a Jan put at 35 and a Jan 37 SC on Friday. There are various scenario in this "chess game".
The stock can easily resume its bullish run and SLW could be 40-50 by the end of the year! As for now, it has no indication technically that this is the direction. But the fundamentals are still very strong. There could a run by those who shorted the stock.
As long as the stock does not trade much above 37, I will keep my short call. But if silver reverses quickly and move up aggressively with some fundamental events, I will remove the SC first at around 37 or 38. If it continues, the long put will be removed. I will lose some money on my puts and SC but will make money on the stock.
The most likelihood scenario is there will be a correction after such a parabolic move.This is very healthy. There is support at 31. There is strong support 26 if it breaks the 31 support.When it shows support at 31 and move back up technically, I will take profit on the put. By that time, there is high probability that I will keep the credit for my SC. I may take profit on the SC if there are strong bullish signal here.
It is also possible that the stock can break the first support at 31. If so, I will continue to roll the put protection to at least 45 days or more once it reaches about 3-4 weeks to expiration. I will continue to add SCs month by month until bullish signals are issued. Also, if it very bearish, the SC will be deployed nearer to the money or with some remote probability, ITM. The protection will continue until there are clear bullish signals.
If the stock drops more than 25% and there are clear bullish signal, I will add 50% more to my position size. In between. One good level to add is at 26. But I will not do anything until it shows clear support and gives bullish technical signals. Alternatively, I may just add SPs when it is near 26 and be ready to take possession of the stock if it is assigned.
I had held SLW from around $3 since end 2008. I had added to my positions a few times along the way.
It is my belief that the bullish trend for precious metal is not over. So I look to add to my positions. I will not liquidate the stock position nor allowing it to be called out by the SC. As long as all the fundamentals are intact, there are no reasons for me to do otherwise.
Posts
There was support yesterday for silver at 25. So I initiated a SP at Nov 30 for .5. This is a nice trade - 2 days to make 0.5.I should claim the full credit tomorrow.
ReplyDeleteToday, it confirms the support. So I took out the SC at 37 and took some profit.
We are not out of the woods yet. So I maintain my Long Put. I will short a call when it shows some signs of resistance.
Today, I sense a slight breakdown in the direction of gold.
ReplyDeleteAs I said, I am wildly bullish on gold and silver. I believe the probability of a parabolic break up is there.
But for the short to medium term, gold can be brought down to below 1300.
Someone ask me why I maintain my put of SLW. The primary reason is that I do not see the bullish break up yet. I need to keep some hedge in the trade.
So today, I added back the SC for SLW after taking it out a few days ago turning the trade into a collar once again.
If is highly possible that I can be wrong. If so, I just need to take take out the SC for a small loss since it is OTM.
If it goes down and reaches support, I will take profit on the SC. May even add a SP and take out the LP eventually.
If turn bearish, I will continue to roll down the SC and SP until the stock clear support.
The precious market issued a bullish signal yesterday. I updated the comments by saying that I added a SP for SLW.
ReplyDeleteI expect gold to go past 1400. So for my other trades on gold, I took out the protective put without losing any money.
For some reasons the comment yesterday did not appear.
Anyway, I took out my protective put for SLW today.
So now I am only left with an OTM Nov 40 SC or a covered call trade together with a SP. I am bullish.
If SLW continues to ramp up, I may roll up the SC, remove the SC or just let it be called out and enter another trade. For the time being there is no need to adjust. Just let the SC goes slightly ITM and most probably it will correct. If the trade is on my favor, it should go stagnant at 40. That will be my ideal price as I benefit from the whole move up plus having the SC expires realizing its full premium. If this is the case, I will continue to add another SC for Jan once the stock is stagnant.
Of course, it there are signs of bearishness, I will not hesitate to add a protective put again. It is always good to buy insurance especially after such a stellar profit over the last 3 months.
I am back on the defensive especially when I am traveling over the next 1 week.
ReplyDeleteI collared the stock today. Buy March ATM put at 39 at 4.6.
My SP and SC for Dec all expired giving good credits to support my LP.
ReplyDeleteI decided to take out my LP March 39 for a profit.
However, at the last 5 minutes, there were some big sellers. If I had not sold my puts, it will be break even for the day.
I may have to add back my put on Monday or sell a SC if the stock goes down.
For the time being the stock is running naked!