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speedybure (< 20)

Unconventional Strategies For Those Who Have A Strong Conviction In Gold



April 08, 2009 – Comments (3) | RELATED TICKERS: GLD , SLV

Aside from buying actual shares or call options on the GLD,GDX or any Miners, there are some strategies some might consider. (I can't emphasize enough, know what your doing(risks), avoid margin buying or keep it to a minimum).  


1)My favorite was/is writing put options when gold(GLD) went to 820-825. I feel this is rather safe although gold is inherently volatile if approach this in the right manner. I wrote multiple out of the money puts for 2011. Gold would have to drop below 750 for me to incur losses at expriation. But you don't have to wait until 2011 to not have to worry about the puts you wrote. If gold went to say 1000 at anytime between when i bought them and Jan 2011 i could buy the calls back for 10% of the cash I recieved from writing them. 


 Warrants- Check out, to get a complete list. Silver Wheaton, Kinross gold and many others go out to 2013. They are more accurately priced because unlike the options market pricing model (black-scholes) which assume a normal probability distribution, warrants aren't (but rather allow you to determine the intrinsic value. 


 Equity Future Options- They are available on many miners and in my opinion give you more leverage than options depending on the size and cash position of your portfolio.  


The same goes for SLV and most OIL etfs in terms of writing out of the money leap puts. This is just informing people of instruments that often go overlooked. 

3 Comments – Post Your Own

#1) On April 08, 2009 at 11:36 PM, XMFSinchiruna (26.40) wrote:

I would add a decidedly more impassioned plea for Fools to avoid placing any precious metals bets on margin...

Jim Sinclair's post from today:

Dear CIGAs,

There are still extremely large (legal and otherwise) short positions in junior gold and silver as well as junior producers, both who remain uncovered. Their ability TO POUND LOWER is coming to an end.

The short of gold on the COMEX, or for that matter the short of gold in everything gold and silver is incestuous.

We have differences from time to time in market views, but I believe you respect my understanding of the technical characteristics and mind of the opposition in precious metals.

Within a maximum of 60 days for comment on the reinstatement of an effective form of the uptick rule, cover needs to be accomplished in the next 90 days for the extremely large short position in the modest or low-volume trading silver and gold issues.

The short sellers, having DONE THEIR BEST TO POUND DOWN THE PUBLIC COMPANIES TO COVER, now have only one option left.


You will recognize the dirty tricks when they occur.

You witnessed it in Royal Gold (RGLD) when it occurred. You have seen it in multiple silver issues. The South African shares have not been immune.

No precious metal share is immune for the next 90 days. That goes without exception.

Upward Surge From Uptick Rule’s Return?
By RANDALL W. FORSYTH  Barron’s Weekly

Market’s bottoming is a process that can’t be hastened by government interference.WILL THE UPTICK RULE SAVE the stock market again?

Back in 1938, the original establishment of the uptick rule helped to reverse the 49% drop in the stock market over the 1937-38 period, according to Louise Yamada, the highly regarded head of Louise Yamada Technical Research Advisors.

The Securities and Exchange Commission is scheduled to take up a number of proposals Wednesday that would curtail short-selling, including a reinstatement of the uptick rule. (To review, that regulation required that a short sale — the sale of borrowed shares in anticipation of lower prices — could only take place after a trade that took place at a higher price, that is, an uptick. The idea is to prevent piling on by the bears.)


How do you prepare?

1. You must eliminate ALL margin. Margin is the tool of dirty tricks, which still exists under $5 as maintenance margin. It is the killer. If you have any form of margin in anything gold between now and mid-June you have made yourself a sitting duck for the last try to cover, known here out as the DIRTY TRICK.

2. Be prepared mentally to go through what the shareholders of Royal Gold had to endure around $10 before it rose to over $40.

3. Recognize that the strategy of the DIRTY TRICK is now a last ditch hail Mary play by the bad guys (people who cannot profit if the game is played according to the rules) to make cover as they are about to lose.

4. If you know that emotions have a nasty habit of driving your market or investment decisions, please reduce the size of your position to the point of comfort, but stay prepared to re-enter if your issue becomes the target of the DIRTY TRICK.

Please remember that Royal Gold (RGLD) earned its position as a target because it was a leader in the field and had a large frustrated short position made up of the same suspects as today.


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#2) On April 08, 2009 at 11:42 PM, speedybure (< 20) wrote:

Good Point, I should have stressed it more

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#3) On April 09, 2009 at 3:55 PM, speedybure (< 20) wrote:

Those more expirienced could also sell the april 95 calls and sell the  90 jan 2010 or 2011 puts. Referring to GLD. Again I am not advocating any strategy i mentioned before, now, or in the future, its just some food for thought. A safer way to make these strategies less risky is to keep 5-8% cash balance in the merk currency fund, which is a basket of currencies, so you are not subject to the future collapse of the dollar. (collapse I mean the inevitable reduction in the purchasing power). 

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