Jump to content
G0ldfinger

On the Wings of Gold: GF's GAMBLING & COMMODITIES Thread

Recommended Posts

Further to the post quoted below, this thread's intention is to post/discuss/gather some ideas on such bets.

 

For instance, as announced some time ago, I recently bought some far out-of-the money oil calls. In this particular example, I bought $200 WTI calls for Nov. 2012. The cost of these calls at the moment is next to zero. I do think that there is a realistic chance that oil could trade higher than $200 within 2 years time, so I took the plunge.

 

Now, here is the important part:

 

- I immediately wrote off this "investment" (which it clearly is not, since it is a pure bet for or hedge against high oil prices).

- The amount invested was very small, negligible, so a total loss is irrelevant.

- However, the potential is real, and because of the very small price, sizable.

- Psychologically and financially, this seems to be the right approach to these kind of high risk bets.

 

What I want now is to search for more such opportunities. In particular, I will look into

- oil

- uranium

- rare earths/metalls

- corresponding stocks or funds.

 

I might also start to buy stocks/fund outright, in which case it is an investment and does not really belong into this thread. However, also with stocks, I might look into out of the money calls.

 

IMPORTANT: I do not intend to short anything (potentially unlimited loss, e.g. if Ben prints enough). I will restrict this to going long options only, and in fact, most likely calls only.

 

Ideas are welcome. Next thing on the shopping list is uranium. I have no clue yet as to how I will do it in that field.

 

NOTE: I do this while essentially keeping a 100% gold and silver bullion position (excl. pensions).

 

Disclosure: I will start gambling in the derivatives market soon. I will do this in a IMO safe and ethical way:

 

- I will buy far (and I mean really far) out of the money options with maturities between 2011 and 2013.

- I will buy calls only.

- I will invest very small sums only which because of far-out-of-the-money should still buy a substantial amount of options.

- I will immediately write off the premiums that I paid and just hope for a nice surprise.

 

Safe because I hardly invest anything, ethical because I don't divert money from the physical market. (... and possibly profitable, because what other people think of as far out of the money could be reality in a few years' time.)

Share this post


Link to post
Share on other sites
Ideas are welcome. Next thing on the shopping list is uranium. I have no clue yet as to how I will do it in that field.

 

How about call options on Uranium Participation (TSX:U)

 

http://www.uraniumparticipation.com

 

Uranium Participation Corporation is an investment holding company which invests substantially all of its assets in uranium, either in the form of uranium oxide in concentrates ("U3O8") or uranium hexafluoride ("UF6"), with the primary investment objective of achieving appreciation in the value of its uranium holdings. The mission of the Corporation is to provide an investment alternative for investors interested in holding uranium. Denison Mines Inc., a wholly owned subsidiary of Denison Mines Corp., is the manager of Uranium Participation Corporation.

Share this post


Link to post
Share on other sites

Which broker did you use to buy your call options if you don't mind me asking?

 

TD Waterhouse doesn't do it sadly. I know interactive brokers (http://www.interactivebrokers.co.uk/en/main.php) do this kind of thing but I am way too much of a novice at this to be able to use their platform.

 

Any other places a newbie could try?

 

 

Share this post


Link to post
Share on other sites
Which broker did you use to buy your call options if you don't mind me asking?

I am using a platform which is not available in the UK, so, of no use to you. :( What about Barclays, don't they do options?

Share this post


Link to post
Share on other sites

That "gamble" could work.

 

But I prefer to "buy the reality, and sell the dream."

 

So when Gold was at near $900, I was:

+ buying Jan.2011 $90 calls, and

+ selling Jan.2011 $100 calls

 

For about $3.40 debit.

 

That spread is now worth $10, 3x what I paid.

If I had just bought $900 gold, I would be up only 40% +

 

I did it "in size", and these are the GLD bull spreads I have been talking about.

 

I some cases, I adjusted the position, by later Buying back the $100 calls, and selling $110 calls, and higher.

 

Why not try something like that?

Share this post


Link to post
Share on other sites

I would also be interested in some advice as to a suitable trading platform for use in the Uk to do this :).

 

If you're looking for commodities how about Indium?.

Share this post


Link to post
Share on other sites
I am using a platform which is not available in the UK, so, of no use to you. :( What about Barclays, don't they do options?

Sadly not from what I can tell :(

 

Anyone else out there got any suggestions for a UK based options trading newbie?

Share this post


Link to post
Share on other sites

Good thread.

 

So, GOldfinger, exactly what did you buy? Was it a call option on the futures contract? On an ETF? Or something else?

 

And, that's a great demonstration, DrB.

Share this post


Link to post
Share on other sites
I would also be interested in some advice as to a suitable trading platform for use in the Uk to do this :).

If you're looking for commodities how about Indium?.

I don't believe you will find any Futures or etfs for a metal like Indium

Share this post


Link to post
Share on other sites
After a quick search it would appear you're right. I didn't think it was that esoteric.

Indium is a poor metal with uses in the semiconductor industry and LCD industry. Indium is also used in thin-film solar cells in combination with copper, gallium, and selenium. Indium-111 is used in nuclear medicine for imaging leukocytes. There are very few indium minerals, two of which are indite and dzhalindite. It is produced mainly as a byproduct of zinc production.

 

Teck Cominco (NYSE: TCK) - http://products.teckcominco.com/Products/Indium.html - The world's largest producer of indium. Their specialty metals division also produces bismuth, germanium, and cadmium.

SMG Indium Resources - http://www.smg-indium.com/ - Private company stockpiling indium.

Argentex Mining (OTC: AGXM) - Indium miner in Argentina

Yunnan Tin Co. (SHE: 000960)

South American Silver Corp. (TSE: SAC) - South American indium producer

Huludao Zinc Industry Co. (SHE: 000751) - Indium products

Great Western Minerals Group (CVE: GWG) - In 2008 they acquired Less Common Metals, a producer of ultra-high-purity indium

AXT (NASDAQ: AXTI) - Indium phosphide semiconductor substrates

 

As regards Uranium how about CCJ (Cameco Corp)?

There are currently only 441 operational nuclear reactors worldwide and that number is expected to grow significantly within the next decade. According to the World Nuclear Association there are official plans in the works worldwide for 547 new reactors (either under construction, planned, or proposed), 182 of those new reactors are in China alone, 64 in India, 54 in Russia, 32 in the USA, and these numbers are expected to grow.

 

Also, these calls on WTI, are they calls on futures? Do you know who the market maker is?

Share this post


Link to post
Share on other sites
So, GOldfinger, exactly what did you buy? Was it a call option on the futures contract? On an ETF? Or something else?

Call on WTI futures.

Share this post


Link to post
Share on other sites
Why not try something like that?

It's related to the "ethics" statement at the bottom of my OP. I don't want to divert real demand, so the leverage has to be extreme and the cost negligible. That way I also hope to cause maximum damage to the banksters when I get it right. Take a silver call with a strike of $30 for 2016(!) at $7. It seems a safe bet, but it starts diverting real demand if you do it in size and it is very likely the underwriter won't be around (or won't [be able to] honor the agreement) by that time.

Share this post


Link to post
Share on other sites
Also, these calls on WTI, are they calls on futures? Do you know who the market maker is?

Yes, WTI futures. The sellers for many options I have looked at were either SG or DB.

Share this post


Link to post
Share on other sites
For instance, as announced some time ago, I recently bought some far out-of-the money oil calls. In this particular example, I bought $200 WTI calls for Nov. 2012. The cost of these calls at the moment is next to zero. I do think that there is a realistic chance that oil could trade higher than $200 within 2 years time, so

 

Ideas are welcome. Next thing on the shopping list is uranium. I have no clue yet as to how I will do it in that field.

Why not buy some calls on gold at say $2000 Nov 2012? I think that's more likely than oil at $200.

Share this post


Link to post
Share on other sites
Why not buy some calls on gold at say $2000 Nov 2012? I think that's more likely than oil at $200.

This is in fact what many think, and the exact reason why I won't do it since the price for such a call is possibly around $60 right now. This is not far enough out of the money for me, and would divert more serious funds to make it worthwhile. I'd then rather buy physical silver outright for that kind of money (which I have just done, BTW). By 2012 it might also have become very difficult already to get the real stuff in case you wanted to convert your paper gains. So better get it now. :)

 

EDIT: Also, I have no oil-related investments or bets, while it looks different wrt to gold.

Share this post


Link to post
Share on other sites
This is in fact what many think, and the exact reason why I won't do it since the price for such a call is possibly around $60 right now. This is not far enough out of the money for me, and would divert more serious funds to make it worthwhile. I'd then rather buy physical silver outright for that kind of money. By 2012 it might also have become very difficult already to get the real stuff in case you wanted to convert your paper gains. So better get it now. :)

 

EDIT: Also, I have no oil-related investments or bets, while it looks different wrt to gold.

Right, I guess the more speculative, the less cost involved. There must be a point along that continuum where buying a certain call would be a pretty good bet [ie not super-speculative... and thinking gold here] even with the outlay involved. This would probably make more sense for those with their share of physical already stashed away.

 

If you're reasonably sure that gold will strengthen say 20% a year for the next 2, then buying calls on $1900 or so for 2012 seems a fair bet.

Share this post


Link to post
Share on other sites
Right, I guess the more speculative, the less cost involved. There must be a point along that continuum where buying a certain call would be a pretty good bet [ie not super-speculative... and thinking gold here] even with the outlay involved. This would probably make more sense for those with their share of physical already stashed away.

As you say, it is a continuum, so you could be right for any gold-related investor.

 

I repeat myself a little, but I will not divert money away from bullion purchases. I am buying bullion here, I just bought some scrap silver coins. However, with no investments/bets in oil yet, I see an opportunity here at essentially no cost. Oil looks cheap compared to gold.

 

http://gold.approximity.com/since1959/Oil-Gold-Ratio.html

Oil-Gold-Ratio.png

Share this post


Link to post
Share on other sites
Which broker did you use to buy your call options if you don't mind me asking?

 

TD Waterhouse doesn't do it sadly. I know interactive brokers (http://www.interactivebrokers.co.uk/en/main.php) do this kind of thing but I am way too much of a novice at this to be able to use their platform.

 

Any other places a newbie could try?

i use CityIndex. They've got a bonus sign up promotion

Share this post


Link to post
Share on other sites
It's related to the "ethics" statement at the bottom of my OP. I don't want to divert real demand, so the leverage has to be extreme and the cost negligible. That way I also hope to cause maximum damage to the banksters when I get it right. Take a silver call with a strike of $30 for 2016(!) at $7. It seems a safe bet, but it starts diverting real demand if you do it in size and it is very likely the underwriter won't be around (or won't [be able to] honor the agreement) by that time.

"Don't TRADE gold! You might lose your shirt in the biggest bull run ever. That would be embarassing."

 

I'm not sure I get that?

 

I do point out that my approx. 3x gain on those GLD Bull spreads beats anything that the the Gold bulls

did here from Gold $900. And I put it on before the big drop in 2008, and it allowed me to ride thru

that period with limited risk, and not get scared out

 

I may repeat it, and do another Call spread when I like the GLD price level

 

Share this post


Link to post
Share on other sites
"Don't TRADE gold! You might lose your shirt in the biggest bull run ever. That would be embarassing."

 

I'm not sure I get that?

I am not going to join the dark side. :)

 

I have been in physical gold and silver bullion long enough that I have made a very nice multiple of the originally invested capital, and I am still adding to it. I spend a lot of time on watching and analyzing the fundamentals of gold. I do more and in more detail in my proprietary work for funds than people can see on here. As a private individual, my no worries, no hazzle strategy of being long has worked perfectly well so far. Especially with physical bullion where premiums are higher than in the paper shuffle games, constant selling and buying just adds additional risk while it is easier and IMO less risky to just go long in a perfectly healthy bull market.

 

Options are not free. In theory, they are fairly priced (although, the banks certainly charge more anyway), so anyone who buys an option essentially can not really make money in the sense of an arbitrage. The costs of repeated usage of options can be substantial, and there is a reason why banks are on the other side of this business, because most of the time they make money out of you. From a risk insurance perspective, I don't really see why I should use them either (bull market, large profits so far i.e. very good buffer for any downswings).

 

Where I think there is a chance to make more money out of them (banksters) than vice versa is where they ignore the fundamentals and in the tails of the distributions where their models usually have weaknesses. That's why I am looking into far-out-of-the-money calls in areas that I am bullish about for fundamental reasons. As for gold/silver, the bull market here is more obvious (now) than e.g. in oil , that's why these options are more expensive.

Share this post


Link to post
Share on other sites
Further to the post quoted below, this thread's intention is to post/discuss/gather some ideas on such bets.

 

For instance, as announced some time ago, I recently bought some far out-of-the money oil calls. In this particular example, I bought $200 WTI calls for Nov. 2012. The cost of these calls at the moment is next to zero. I do think that there is a realistic chance that oil could trade higher than $200 within 2 years time, so I took the plunge.

 

Now, here is the important part:

 

- I immediately wrote off this "investment" (which it clearly is not, since it is a pure bet for or hedge against high oil prices).

- The amount invested was very small, negligible, so a total loss is irrelevant.

- However, the potential is real, and because of the very small price, sizable.

- Psychologically and financially, this seems to be the right approach to these kind of high risk bets.

 

What I want now is to search for more such opportunities. In particular, I will look into

- oil

- uranium

- rare earths/metalls

- corresponding stocks or funds.

 

I might also start to buy stocks/fund outright, in which case it is an investment and does not really belong into this thread. However, also with stocks, I might look into out of the money calls.

 

IMPORTANT: I do not intend to short anything (potentially unlimited loss, e.g. if Ben prints enough). I will restrict this to going long options only, and in fact, most likely calls only.

 

Ideas are welcome. Next thing on the shopping list is uranium. I have no clue yet as to how I will do it in that field.

 

NOTE: I do this while essentially keeping a 100% gold and silver bullion position (excl. pensions).

 

Could you please explain a bit more about how you did this?

 

Share this post


Link to post
Share on other sites
That "gamble" could work.

 

But I prefer to "buy the reality, and sell the dream."

 

So when Gold was at near $900, I was:

+ buying Jan.2011 $90 calls, and

+ selling Jan.2011 $100 calls

 

For about $3.40 debit.

 

That spread is now worth $10, 3x what I paid.

If I had just bought $900 gold, I would be up only 40% +

 

I did it "in size", and these are the GLD bull spreads I have been talking about.

 

I some cases, I adjusted the position, by later Buying back the $100 calls, and selling $110 calls, and higher.

 

Why not try something like that?

 

Could you please explain a bit more about how you did this?

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×