Gold and Silver directions

It looks like gold has another bullish leg to go.


The last 2 days are very bullish especially during this time at the end of the year. Volume are decent. These are days of quiet year end holiday trading where average volumes are using very small. Usually at this time of the year, there are profit taking especially after a year of stellar gains.

If it breaks out the previous high, it should go to the next resistance at 1470. Elliot Wave analysis points to the beginning of new wave 1 or a new bullish cycle. It will have to go through another  wave 123 and a b c for this cycle.










Below is another analysis using Andrew's pitchfork which supplement the above. It should gold bouncing nicely from the upper channel of the fork. It was working fine for the last few months.

Many of the upside are short covering on Tuesday especially for silver.

Most of my positions are naked right now. I may add in some OTM short calls tomorrow before going for the long weekend. There are no signs of deceleration of the bullish trend but to be conservative, I should add some hedge to all the trades.

My account should end up another very good year in 2010.

With all the bullishness around, any bad news will send the price for a correction of up to 10%. This applies not only for gold and silver but also for the general market.

The bullish sentiments on the second half of 2010 is simply incredible. Normally, I would have gone to at least 50% cash with such sentiments. But with options hedging, I am still 80% invested. Also, I have another 25% with bearish positions of covered puts and synthetic puts. It acts as a hedge for my whole portfolio.

Precious metal positions

All my SP and SC expired for December.

Most of my silver positions are running naked.

If the price goes up on Monday, I will be running naked until it hits a resistance and I will add a SC.

If it goes down on Monday, I will be initiating a collar for all the positions i.e. selling a SC 2 strikes up with 2-3 months timeframe and  > 45 days ATM put.

Once the stock reaches a support level, I will add a SP, roll down the SC. If the support is right, I will let go the LP.

This process will continue until the metal finds a direction. If bullish, it will be running naked again.

This will give you an idea of how I trade my positions dynamically in a collar.

These are not for beginners. For those who are not sure, just keep the collar and protect yourself. You will still make good money if the stock continues to go up. 

If there are signs of a parabolic breakup, take out the SC for a loss and let it run with a married put ( stock + LP).

Where is inflation?

There is a huge ongoing debate of inflation versus deflation.

The question to ask is where do we see inflation. Do we experience it now?















The answer is below:

• Oil is at $89 a barrel, up 21% in the last year.
• Gold is trading at $1,413, up 23% in the last year.
• Silver is trading at $30, up 66% in the last year.
• Copper is trading at 4 per pound, up 26% in the last year.
• Corn is trading at 573 a bushel, up 49% in the last year.
• Soybeans are trading at 1,300 a bushel, up 23% in the last year.
• Wheat is trading at 779 a bushel, up 41% in the last year.
• Pork is trading at 104 a pound, up 23% in the last year.
• Beef is trading at 106 a pound, up 28% in the last year.
• Cotton is trading at 130 per pound, up 78% in the last year.
• Sugar is trading at 29 per pound, up 32% in the last year.
• Coffee is trading at 205 per pound, up 40% in the last year. 

If this is not inflation, what is it?

Another short term income trade - ITM CC FSLR

Today, I entered another short term ITM covered call for FSLR.

FSLR is volatile stock and is great for trading. It has been beaten down in the month of Nov.

Fundamentally, I am not a fan of FSLR. I believe its operating margins are under pressure and its technology is losing its edge compared to the competitors.

But the stock has been greatly oversold. On end of November it formed a base and issued a positive signal yesterday. Today, the positive signal is confirmed.

I do not want to be over optimistic. The rise of the stock is also driven by the bullish reversal of the overall market the last 2 days. This rally has the potential to go on for another 2-3 weeks until options expiry date.

For this trade, I initiated an ITM covered call:

Buy shares of FSLR at 129.15
STO Dec 125 SC   at 7.2
Cost : 121.95
Extrinsic value = 3.05 or which gives me a 2.4% ROI for 15 days which gives me an annual ROI of >57%

It is a safe short term trade yet with high return. Like ISRG, I am deploying the spare cash I have in my account.

Do not despise these 2-3% gains per month. It adds up nicely every month. Normally, I do a lot of these trades in the last 3 weeks of expiration of the month when the theta decay accelerates. 

PE: Let the shares be called out by expiration. As long as the stock stays above 125 by expiration, I will be making money.

SE: If the stock falls below 122, I may add a SP or adjust the call down or just close the trade for a small loss. It all depends on the price actions and the overall market trend over the next 15 days.

Normally,if it goes down violently I will most probably add a put to collar it and continue to add SC until the trade makes money. But there are times, that I may just close the trade because I know fundamentally it has broken down.

If the stock falls without fundamental break down or the market turns bearish before Dec expiration, I will be forced either to roll the SC down first and then add a protective put.