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A Soft-Shoe in GoldRick Ackerman
We had bids in below the market Friday for some QQQ calls, but perhaps we shouldn't be too disappointed about not getting filled. The July 37s were trading for 2.00 apiece earlier this month and for 1.40 as recently as Thursday, but as the index tumbled yesterday toward an abysmal close, the July 37s came within 0.05 of our stingy 45-cent bid. When stocks are falling hard on a Friday, call premium can evaporate with frightening speed, especially for those who own them. And yes, you're right, it can be a helluva a lot easier to make money being short options than trying to scoop them up at bargain prices in hopes they'll double before time decay wins the game, as it very often does. However, because of the punitive margin requirements governing naked-short positions held by retail customers, I never, ever recommend option strategies that would leave subscribers net-short contracts. Instead, we look for our edge at swing points, attempting to buy puts at rally tops, calls at swing lows. Ideally, those who hold puts and calls will be at the point of despair when the stock is topping or bottoming, and they will sell us options not at fair value, but at distress prices. (Click to enlarge)
A Winner in Gold Speaking of swing points, we had a fine winner in Comex August gold, which danced on our hidden pivots Friday (see chart above) with the precision of an Astaire soft-shoe. Here are the instructions I put out the night before, for those of you would like to retrace the steps for practice: "August Comex Gold is accelerating toward a 447.70 rally target first broached here more than a week ago, when the futures were trading below 437. The target has a 60 percent chance of being reached by Tuesday or earlier, but if it's exceeded by more than 30 cents we should infer that the rally is likely to continue to at least 451.10. "To play this opportunity conservatively, let's bid 442.30 for a single mini-contract, stop 441.90. The order will remain viable as long as the August mini-contract has not exceeded 443.60 first. My hunch is that a fill during the night session would be the most auspicious way to initiate the trade, so I'll specify it as a night order, good till 4 a.m. Friday ET. You'll be on your own thereafter, but immediate upside potential would be to at least 444.10, with a shot at 445.80." As it happened, the night shift served this one up steaming hot and seasoned to perfection. Using a 441.90 stop, we bought 442.30 late Thursday evening, three ticks off the overnight low. The strong rally that ensued pushed the futures to within four ticks of the 445.80 target, granting us a relaxed and nicely profitable exit before gold swooned $5.50 as the day session began Friday morning. I expect that many of you will be rarin' to go the next time we try this gambit, right? *** Penny Pinching Grappling with the trend? Check out Rick's Picks' archives to see how well Rick Ackerman has done with his forecasts and trading strategies. Rick Ackerman Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents ©2005, Rick Ackerman. All Rights Reserved. You can subscribe here. 321gold Inc |
