Beating Buy and Hold (thru disciplined speculation)

[G0ldfinger]

No one can trade these markets perfectly. Every now and then, such trades go horribly wrong. One day, they might ultimately go wrong because of a currency meltdown/onset of hyperinflation. Herding people into trading the silver market is IMHO madness. In the precious metals, for now, buy & hold is THE strategy and it has made fantastic no hazzle returns while providing great insurance against the economic uncertainties of these times.

[drbubb]

The big problem I have with putting my trust and wealth into following an option trading strategy is that we are in the middle of a massive financial crisis. No one knows exactly what is going to happen, there can be manipulation & interventions in markets, defaults on contracts, large financial companies going bust along with massive currency devaulations. This makes me not trust building large positions in any paper financial instrument, particularly ones based on leverage and derivatives.

 

Buying physical gold and silver seems to be a way through this financial nightmare which is simple and without counterparty risk. Of course there will be the same paper manipulations going on as there always is in any financial market, but they can't print more gold or silver, in the long run your buying power should be protected which is what I am interested in.

 

Can I ask for those that crow about they amazing gains in paper trades to be also honest about their loses when they happen. It is very easy to see when a buy & holder of precious metals appears to be losing money, but a lot harder for paper traders who only explain their gains. DrBubb why not start a thread where users can talk honestly about their losing trades I think a lot could be learnt from a thread like that.

You are welcome to talk about your losses here - please go ahead: why not start with recognising you missed an opportunity that I "flagged" on the $50-ish Peak thread ?

 

I started the thread when I did because I though we were in a wonderful window to demonstrate the advantages of trading at strategic moments - and we are in one now.

 

Why don;'t you acknowledge the series of excellent calls that I have made on these two threads over the past two weeks. Others have done so. I am sure there will be opportunities to acknowledge mistakes when they occur. So why not acknowledge that $48-50 was a rare and wonderful opportunity to take profits on silver positions? - Or even just switch into Gold (or Platinum) as many others here have done.

 

Continually beating the drum for Buy & Hold isn't helping anyone, when it is so obvious and transparent now that such inflexibility may bring some special risks in parabolic markets. I have been warning people for some time that the Perma-bulls missed the huge 2008 correction, and that they might miss another. And so they have - in silver. And we will see what follows in Gold and other commodities.

[G0ldfinger]

IMO the traders so far only got lucky because the US banking cartel is still having a strong grip on markets and China is not yet willing to greatly disturb the PM markets. I can easily imagine a day somewhen in the not too distant future where it will look like silver a few days ago, but then big buyer comes in and annihilates all the shorts who thought they were trading geniuses against all the fundamentals that they preferred to mostly ignore.

 

EDIT: There will be a lot of howling and crying in the shorters' community that day. There will be outcries of "manipulation" etc. while in fact the shorters just got the most plain fundamentals permanently @$$-backwards and they'll simply will pay the price for this one day. All IMHO obviously.

[drbubb]

No one can trade these markets perfectly. Every now and then, such trades go horribly wrong. One day, they might ultimately go wrong because of a currency meltdown/onset of hyperinflation. Herding people into trading the silver market is IMHO madness. In the precious metals, for now, buy & hold is THE strategy and it has made fantastic no hazzle returns while providing great insurance against the economic uncertainties of these times.

I never claimed perfection. Anyone who reads my Diary will see I often get the market wrong. But there are rare opportunities and good and sensible ways of taking advantage of them when they come along.

 

Here I am criticizing inflexibility, and the notion that some randomly-chosen future price "MUST" be reached.

 

Have you not learned anything from Sinclair's $200-300 MISS in January ?

 

Why not learn how to use options, and some of the other strategies which might improve your odds of long term success?

[G0ldfinger]

Haven't you learned anything from Sinclair's $200-300 MISS in January ?

A non-event to me, and I do think we can easily see $1,650 this year. If not, then I think the EUR-gold returns will be even more fantastic with the zone falling apart (sorts of) right now.

[drbubb]

Who's portfolios?

 

EDIT: Retrospectively creating portfolios, I can create fantastic outcomes too. Someone with a buy & hold in silver has made fantastic returns while holding real money and having almost no hazzle.

They were not "respectively created" at all (!!)

 

I posted the trades AS I DID them. Even posting one in the wee hours of the morning when I happened to wake up and check the market.

 

See post #8 above:

SLV JUL 16 2011 29.00 CALL

Last [Tick] 6.70[-] Change 0.50

Bid 6.25 / Ask 6.35

---

For Portfolio Alt.#1, I am taking the other 50,000 oz.

Thru July $29 Calls at $6.35

 

I took the offer price (not the mid price) right off my Fidelity screen.

[drbubb]

A non-event to me, and I do think we can easily see $1,650 this year. If not, then I think the EUR-gold returns will be even more fantastic with the zone falling apart (sorts of) right now.

Fine.

I took profits on my GLD spreads in January, and then reinvested in new Bull Spreads on that dip in February. I think i caught the day of the low. The spreads are now trading at near their maximum values as the price move up.

 

I didn't make a big deal of having nailed the timing then. But I thought with Silver at such an extreme point, it was time I did a near real time demonstration of how a trader might time volatile markets.

 

That is what this thread - and the 50-ish Peak thread are about.

 

Watch and see how I do. I am sure I will make mistakes, but I think I can beat Chapman's Buy & Hold - even through parabolic rises - idea.

[drbubb]

On hedging an options:

I think there is a level of sophistication using options that goes beyond your comment.

[Errol]

I'm not denying the sophistication or the fact that Bubb's strategy may indeed make loads of money. I'm just saying that some (probably most) people are just better off buying and holding where gold is concerned (physical).

[drbubb]

I'm not denying the sophistication or the fact that Bubb's strategy may indeed make loads of money. I'm just saying that some (probably most) people are just better off buying and holding where gold is concerned (physical).

There's NO DISAGREEMENT from me on that !

 

In case you missed this in the original post:

 

UPFRONT WARNING : This thread is not for everyone.

Implementing these strategies & getting the timing right requires more than skill. You need the right mental and emotional attitude (and a some real luck) to buy at the right time. And you also have to be willing to be wrong sometimes, and live with the implications of being wrong. That may mean entering trades and exiting at uncomfortable moments. If this does not sound like your "cup of tea", then stick to simpler strategies. You will sleep better.

 

== == == == ==

 

So long as there is some good interest in this, and assuming I have the time...

I plan to do an update at least once a week, aiming for close of business on Friday:

 

UPDATE: Friday Close: 6 May:

====== : B&H Portf. : Alt.Port #1 : Alt.Port #2 :

SLV$34.48

Cash--- : - - - - -- $ 0 : - $4,182 K : - $4,800 K :

SLV.oz : --- 100,000 : -- 000,000 : -- 000,000 :

Value- : --- $3,450 K : - $0,000 K : - $0,000 K :

Opt.Oz : --- 100,000 : -- 100,000 : -- 000,000 :

Note--- : --- - None - : - opt. A&B : -- - None - :

Opt.Val : --- - None - : - $0,617 K : - $0,000 K :

TotVal. : --- $3,450 K : - $4,799K : - $4,800 K :

======

Options:

A / jun.$30c - bot at $6.00 x 50,000 = $300k : worth: $5.60

B / jul. $29c - bot at $6.35 x 50,000 = $318k : worth: $6.75

 

I am sitting in cash with Portfolio #2, because I think lower Silver prices are still a good bet.

But I wanted to show with portfolio #1, if your aim is just to beat B&H, then the current levels are too attractive to miss, so I quickly grabbed the 100,000 oz. Call position. I have two different months to allow some flexibility.

[Perishabull]

Can I ask for those that crow about they amazing gains in paper trades to be also honest about their loses when they happen. It is very easy to see when a buy & holder of precious metals appears to be losing money, but a lot harder for paper traders who only explain their gains. DrBubb why not start a thread where users can talk honestly about their losing trades I think a lot could be learnt from a thread like that.

 

This is a good idea for EVERYONE, traders and investors alike. Setting up an investing/trading journal is an amazing platform and very powerful tool that you can develop and grow from. Since I started doing this my trading performance has improved hugely, to the point where a hobby now has the potential to develop into a career (I trade futures full time every other week now).

 

I am a big believer in transparency, if you have to write everything down and you know others are reading it, it enhances your focus and keeps a track on your line of thinking. If you make a mistake you want to make damn sure you don't do it again as you're going to have to write it down and effectively you are holding yourself publically accountable in this way. Anyone is free to read about all my trades on my GEI blog journal (eg shorting the NASDAQ at a high and closing at a low), although some are shockingly bad (eg going long NASDAQ futures and getting stopped out within 17 seconds).

 

 

A journal also helps you to be more OBJECTIVE, you read back what you have written and constantly question yourself. Elsewhere I've read comments like traders getting "lucky" at shorting silver at the high. Does anyone consider serious players such as; Soros (MSM news reports advised Soros funds exited silver and gold positions), James Dines (advised all subscribers to exit silver at $49), Ben Davies (took out silver hedges), theMadhedgefundtrader (suggested buying SLV puts at the top) and our man here Bubb (starting the silver top thread), lucky?

 

I find that the harder I work, the more luck I seem to have.

Thomas Jefferson

 

 

 

 

 

 

 

[cranberryDog46]

does $30c denote it's a call, ie long?

[drbubb]

does $30c denote it's a call, ie long?

Yes.

That is exactly right: $30c = $30 Call

 

This is deep-in-the-money, so it is nearly the same as being Long silver,

but with the important difference that:

 

+ If the price falls below $30, and stays there, I need not exercise the Call.

 

+ With the recent volatility in Silver, I do expect prices to go lower, and I think that $26 is a reasonable possibility. (But I am not so sure, that I would wait for that target in the "more conervative" Portfolio #1)

 

If the price falls far enough, I will REPLACE the calls with lower strike calls, or simply ADD lower strike calls.

 

A good reason for this thread might be to give those new to options a running example of how an experienced trader can trade options.

 

I might also use the substantial cash in these two portfolios to buy physical silver (or gold) at some stage.

[drbubb]

A journal also helps you to be more OBJECTIVE, you read back what you have written and constantly question yourself. It's also interesting to see comments like traders getting "lucky" at shorting silver at the high. Does anyone consider serious players such as; Soros (MSM news reports advised Soros funds exited silver and gold positions), James Dines (advised all subscribers to exit silver at $49), Ben Davies (took out silver hedges), theMadhedgefundtrader (suggested buying SLV puts at the top) and our man here Bubb (starting the silver top thread), lucky?

 

Good point.

Keeping a Diary does help to clarify the mind - and makes it harder for you to hide from your mistakes.

Maybe others should try it to.

 

I am happy to hear you are enjoying such success. Maybe you will be asked for your story in Version #2 of Free Capital someday, if there is one.

 

The biggest thing for me in recommending people stay alert for a top was the PARABOLIC PRICE MOVE. I am surprised that experienced traders like Bob Chapman missed out on that.

[cranberryDog46]

Yes.

That is exactly right: $30c = $30 Call

 

This is deep-in-the-money, so it is nearly the same as being Long silver,

but with the important difference that:

 

+ If the price falls below $30, and stays there, I need not exercise the Call.

 

+ With the recent volatility in Silver, I do expect prices to go lower, and I think that $26 is a reasonable possibility. (But I am not so sure, that I would wait for that target in the "more conervative" Portfolio #1)

 

If the price falls far enough, I will REPLACE the calls with lower strike calls, or simply ADD lower strike calls.

 

A good reason for this thread might be to give those new to options a running example of how an experienced trader can trade options.

 

I might also use the substantial cash in these two portfolios to buy physical silver (or gold) at some stage.

 

 

I will be following this thread and have just ordered the following book:

 

Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks

 

 

started to get an uneasy feeling when silver went parabolic, thought of swapping for gold at $50 but took no action and got out at $42

 

not unhappy to miss top, glad to get out with nice profit rather than clinging to fantasy.

[Pixel8r]

You are welcome to talk about your losses here - please go ahead: why not start with recognising you missed an opportunity that I "flagged" on the $50-ish Peak thread ?

 

I started the thread when I did because I though we were in a wonderful window to demonstrate the advantages of trading at strategic moments - and we are in one now.

 

Why don;'t you acknowledge the series of excellent calls that I have made on these two threads over the past two weeks. Others have done so. I am sure there will be opportunities to acknowledge mistakes when they occur. So why not acknowledge that $48-50 was a rare and wonderful opportunity to take profits on silver positions? - Or even just switch into Gold (or Platinum) as many others here have done.

 

Continually beating the drum for Buy & Hold isn't helping anyone, when it is so obvious and transparent now that such inflexibility may bring some special risks in parabolic markets. I have been warning people for some time that the Perma-bulls missed the huge 2008 correction, and that they might miss another. And so they have - in silver. And we will see what follows in Gold and other commodities.

Yes you did make good call on this temporary pullback from $50 but I do think that part of this has been luck. You didn't know that the CME would raise margin 5 times in such a short amount of time, no one did. I realise there was the potential for a pullback when approaching $50 due to the usual round number/old high factors. I don't see that getting lucky and having 5 margin hike in a very short amount of time is something you can take credit for, I didn't notice anything in you $50-ish peak thread about there would be lots of margin hikes when we got there.

 

Attempting to trade a physical position is not something people should be attempting on a regular basis IMO, due to the commissions and tax implications. I bought a large amount of silver in Spetember '08 at £6 per ounce, if I had attempted to trade at the recent high of £29 I would have had a profit of £23 per ounce. From that £23 I would have had to pay 18% tax which would be £4.14 per ounce of tax. To rebuy physical silver via GM now I would need to pay another commission fee of 4.24% and could buy @ £22.67 per ounce. If you add the tax payable to the new cheaper purchase price you get £26.81 which isn't a massive distance from the top price of £29.5 and still miles above the £6 my cheapest buy was at.

 

So you can see that even though we have had a very large drop in the silver price it has hardly been worth attempting to trade via selling physical metal.

 

I have swapped some silver back to gold over the last month, that I had previously swapped at 72 on the ratio. Which was part of my reason for not swapping more recently as more would have taken me over my CGT allowance and meant tax was liable to be paid. I did not miss the 2008 correction as you have inferred above, I actually swapped gold to silver at 72 on the ratio, I also sold physical metal to by shares which 2 of have since 10 bagged.

 

Why don't you answer my comment about the fact that trading via options is an inherently risker proposition in a financial crisis than buy and holding metals, of course you may make better profits but then again most people wouldn't have the sort of financial experience you have. What would have happened if you had options issued via Lehmans when they went bust in '08, would you have ended up losing your potential profits? I remember at the time that certain ETFs that were stopped by AIG ended up acting very strangely for a while.

[drbubb]

started to get an uneasy feeling when silver went parabolic, thought of swapping for gold at $50 but took no action and got out at $42

not unhappy to miss top, glad to get out with nice profit rather than clinging to fantasy.

Don't kick yourself for that. It is really not bad, considering Silver is now around $35.

Concentrate on getting the best re-entry point into Silver, Gold, Platinum, or precious metals shares.

[drbubb]

Yes you did make good call on this temporary pullback from $50 but I do think that part of this has been luck.

You didn't know that the CME would raise margin 5 times in such a short amount of time, no one did.

A Margin increase was not a big shock, and there was historical precedent in the Hunt peak as well.

 

Without the very fast parabolic move up, you would not have seen rapid-fire margin increases like that.

 

Maybe you should concentrate on switching between Gold and Silver, Pixel, since you seem very comfortable with that style of trading. Options could add another dimension to it.

 

 

"Why don't you answer my comment about the fact that trading via options is an inherently risker proposition in a financial crisis than buy and holding metals?"

 

It depends entirely on how you use them. As I said elsewhere, if a burglar broke into my home, I would rather have options contracts in my vault than gold bars - assuming he found them.

[cranberryDog46]

A Margin increase was not a big shock, and there was historical precedent in the Hunt peak as well.

 

Without the very fast parabolic move up, you would not have seen rapid-fire margin increases like that.

 

Maybe you should concentrate on switched, Pixel, since you seem very comfortable with that style of trading. Options could add another dimension to it.

 

 

"Why don't you answer my comment about the fact that trading via options is an inherently risker proposition in a financial crisis than buy and holding metals?"

 

It depends entirely on how you use them.

 

positive deviant was talking about margin increases to bring down commodities, I think before the silver fall

[Pixel8r]

A Margin increase was not a big shock, and there was historical precedent in the Hunt peak as well.

 

Without the very fast parabolic move up, you would not have seen rapid-fire margin increases like that.

 

Maybe you should concentrate on switched, Pixel, since you seem very comfortable with that style of trading. Options could add another dimension to it.

 

 

"Why don't you answer my comment about the fact that trading via options is an inherently risker proposition in a financial crisis than buy and holding metals?"

 

It depends entirely on how you use them. As I said elsewhere, if a burglar broke into my home, I would rather have options contracts in my vault than gold bars - assuming he found them.

5 margin hikes in under two weeks is unprecedented and shows the desperation in the silver market currently. I have been and will continue to swap metals when I can see extremes in the ratios, but I will always only do this with a small percentage of my metals as I don't want to be selling my whole stock every year, due to the tax man.

 

How does it "depend how you use them" in default? I am not talking about the risk of making the wrong choice I am talking about the counterpart risk in the trade, you are relying on the paper financial system performing in the middle of a financial crisis.

[azazel]

I would be very stressed out if I was trying to trade these PM markets, so as you say DrBubb, its not for every one. When you look at gold gbp over the last 10 years, the increase has been steady, favoring a buy and hold strategy, so you would have been unlikely to have done very well trading it.

 

Goldfingers timely call was spot on when he said he was swapping silver for gold just before the drop in silver price. I would be interested to know if he went and sold a load of coins and bars or was it silver in a goldmoney or BV account?

[drbubb]

5 margin hikes in under two weeks is unprecedented and shows the desperation in the silver market currently. I have been and will continue to swap metals when I can see extremes in the ratios, but I will always only do this with a small percentage of my metals as I don't want to be selling my whole stock every year, due to the tax man.

 

How does it "depend how you use them" in default? I am not talking about the risk of making the wrong choice I am talking about the counterpart risk in the trade, you are relying on the paper financial system performing in the middle of a financial crisis.

I believe the margin hikes in 1980 were bigger

[drbubb]

5 margin hikes in under two weeks is unprecedented and shows the desperation in the silver market currently. I have been and will continue to swap metals when I can see extremes in the ratios, but I will always only do this with a small percentage of my metals as I don't want to be selling my whole stock every year, due to the tax man.

 

How does it "depend how you use them" in default? I am not talking about the risk of making the wrong choice I am talking about the counterpart risk in the trade, you are relying on the paper financial system performing in the middle of a financial crisis.

The risk of counterparty risk on futures is acceptable to me, and is SMALLER imho than the storage risk, that I have described and is rarely mentioned

[drbubb]

I would be very stressed out if I was trying to trade these PM markets, so as you say DrBubb, its not for every one. When you look at gold gbp over the last 10 years, the increase has been steady, favoring a buy and hold strategy, so you would have been unlikely to have done very well trading it.

 

Goldfingers timely call was spot on when he said he was swapping silver for gold just before the drop in silver price. I would be interested to know if he went and sold a load of coins and bars or was it silver in a goldmoney or BV account?

There was a huge drop in 2008, that few want to mention, and there is also the risk that a B&H owner misses the ultimate peak, as many did back in 1980

[cranberryDog46]

The risk of counterparty risk on futures is acceptable to me, and is SMALLER imho than the storage risk, that I have described and is rarely mentioned

 

could you point us at a thread where you describe this risk