Beating Buy and Hold (thru disciplined speculation)

[drbubb]

Options "Time Value" in the Portfolios....

 

The Silver price was virtually UNCHANGED on the week.

(SLV fell from: $34.48 to : $34.39, that's only 7 cents !)

 

I managed to stay ahead of time decay by making timely trades near the extremes of the week:

 

 

UPDATE: Friday Close: 13 May:

(Silver : $35.36 / SLV : $34.39 / USD : $75.71 )

 

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

SLV$34.39

Cash--- : - - - - -- $ 0 : - $4,152 K : - $4,670 K :

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

Value- : --- $3,536 K : - $0,000 K : - $0,000 K :

Opt.Oz+/--- 000,000 : -- 080,000 : -- 020,000 : calls

Opt.Oz -/--- 000,000 : -- 050,000 : -- 000,000 : puts

Note --- : --- - None - : opt. ABC - : -- opt. D :

Opt.Val : --- - None - : - $0,764 K : - $0,132 K :

===== : ===========================

TotValue: -- $3,536 K : - $4,916K : - $4,802 K :

Vs B&H: --- 100.0% - : -- 139.0% : -- 135.8% :

TimeVal.: -- $0,000 K : - $0,079K : - $0,045 K :

======

Options:

A / jun.$30c - bot at $6.00 / 30,000 x $5.27close = $158K ($26K)

B / jul. $29c - bot at $6.35 / 50,000 x $6.42close = $321K ($48K)

C / may$40p- bot at $3.61 / 50,000 x $5.70close = $285k ($05K)

D / oct.$30c - bot at $6.50 / 20,000 x $6.62close = $132k ($45K)

Closed: Sold 20,000 option B at: $7.50

 

Record : B&H Portf. : Alt.Port #1 : Alt.Port #2 : -SLV- : -DXY- /--CRB-- = "real#"

======

28 Apr.: --- $4,800 K : - $4,800K : - $4,800 K : $47.26 x73.12 / 3.7056 =# 9.326

06 May: --- $3,550 K : - $4,799K : - $4,800 K : $34.48 x74.84 / 3.3735 =# 7.650

13 May: --- $3,536 K : - $4,916K : - $4,802 K : $34.39 x75.71 / 3.3853 =# 7.692

 

I am going to revise the options section, to show the time value, which might be lost through "time decay":

Options:

A / jun.$30c - bot at $6.00 / 30,000 x $5.27close = $158K ($26K)

B / jul. $29c - bot at $6.35 / 50,000 x $6.42close = $321K ($48K)

C / may$40p- bot at $3.61 / 50,000 x $5.70close = $285k ($05K)

D / oct.$30c - bot at $6.50 / 20,000 x $6.62close = $132k ($45K)

Per Account :

Alt.Port #1 : $ 79 K

Alt.Port #2 : $ 45 K

 

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

TotValue: -- $3,536 K : - $4,916K : - $4,802 K :

Vs B&H: --- 100.0% - : -- 139.0% : -- 135.8% :

TimeVal.: -- $0,000 K : - $0,079K : - $0,045 K :

 

What's interesting is: if the Time Value melts to zero on Alt.Port.#1,

then the valuation will remain about $4,800 K - and much of the Downside (50,000 oz)

is now hedged with May Puts. So a drop this coming week would not hurt much.

[G0ldfinger]

A rally from $18 to $48 in about 8-9 months qualifies as a bubble for me, and most other people.

 

The proof?

Of the $30 rally, over half has already been retraced.

This is not a bubble, this is a time of intermediate volatility on the way up.

 

Everyone who sold their silver 2008 at $20 and never bought back possibly wanted to shoot themselves only a couple of weeks ago.

 

Now they're all back out of the woods talking of bubbles. But in a few years time they will want to shoot themselves again.

 

These paper bugs have the problem that they never took the time too look at the real value of things, without the paper noise confusing them.

 

I have looked at gold in various different real measures (US-debt, money supply, house prices, Dow Jones, US-GDP). There clearly is no bubble at all. In fact, in some of these measures, gold still looks extremely cheap.

 

As long as gold is not in a bubble, or can be considered cheap, silver won't be at a big top either IMHO. But it is worth watching the G:S ratio for silver expensiveness.

 

The other day you started measuring things in gold bars. What was that? A trial run that you immediately abandoned, not taking the lessons from it? You have to look through the paper price volatility (as Merv would possibly have formulated it).

 

EDIT: Also, who are these people who say "hold gold forever"? I have always said that gold should be used to buy other real asset once its price has objectively gotten expensive (e.g. in a historic comparison). Then you swap it for houses, or shares in the Dow etc. Whether you want to hold "paper" at the time is a different issue, possibly not if it is in a hyperinflationary environment.

[drbubb]

... from the pinned SILVER thread ...

 

Silver has still risen from around 5 and most enthusiasts here are adding from their earnt income.

 

At best a fall from 50 to 20 or 8 , or whatever it goes to, is just a bit dissapointing and does provide an

opportunity to get more at a cheaper price.

 

As people have pointed out before, many people here are not sophisticated traders. Silver holders

have done nothing wrong as far as i can see providing at some point in the future they do realise

that they will need to exit there position when prices are high, before others are also heading

for the same exit, where their only buyer is likely to be some gnarly old metal trader offering

them a pretty unattractive price for metal he cannot sell and does not want to hold.

THAT's WHAT I THOUGHT TOO.

 

I imagined that Buy&Holders might have an average Silver cost of maybe $8-10 per ounce, or a maximum of $12.

 

I was AMAZED when I heard that Bob Chapman had an average cost of $18. That means that if Silver falls back to where the Parabolic move started, then he might even have a LOSS on his entire silver position. What sort of Buy & Hold acquisition policy does that show : A buying panic when prices took off last fall - that's what it seemed to me.

 

I like to buy cheap, and sell dear. I don't chase uptrending markets, because you can always find something cheap, if you dig and research hard enough, which is how I wound up buying things like: the Swiss Franc, GLW.t, and even CRB last year. Not popular trades when Iw as buying in, but they worked well.

[drbubb]

This is not a bubble, this is a time of intermediate volatility on the way up.

 

Everyone who sold their silver 2008 at $20 and never bought back possibly wanted to shoot themselves only a couple of weeks ago.

 

Now they're all back out of the woods talking of bubbles. But in a few years time they will want to shoot themselves again.

 

These paper bugs have the problem that they never took the time too look at the real value of things, without the paper noise confusing them.

You have an alarmingly NARROW view of how traders operate !

 

Chances are they switched OUT OF SILVER into something that looked cheaper, it might have been a stock, a different future, or even another precious metal.

 

As an example: OIL IS LOOKING CHEAP AGAIN, when you compare it to the expensive Gold price.

 

The following was first posted on my Diary:

OIL is getting cheap again...

 

 

I say: "the front end was cheap".

 

In "Buying Oil" and article for FS dated 1/15/2009

http://www.financialsensearchive.com/fsu/editorials/2009/0115.html

I recorded the Oil Curve for that article:

 

WTI Futures Curve, "like a ladder"

---------------------

Feb. 2009 $40.83

Mar. 2009 $46.07

Apr. 2009 $49.11

May 2009 $51.21

Jun. 2009 $52.75

Jul. 2009 $54.13

Aug 2009 $55.22

Sep 2009 $56.17

Oct 2009 $57.04

Nov 2009 $57.87

Dec 2009 $58.69

Jan 2010 $59.48

 

For the month of January, Gold was about $800-890 per ounce.

 

Let's compare WTI prices with that Gold price:

 

WTI Month : Price : Oz. (at Gold-$850)

========= : ===== :

Feb. 2009 : $40.83 : 4.80 oz. per 100 Barrels

July 2009 : $54.13 : 6.37 oz.

Jan. 2010 : $59.48 : 7.00 oz.

[drbubb]

ANOTHER from the SILVER thread... ABOUT CORE HOLDINGS...

 

so no core position in silver then?

 

to me a core position is a percentage of a silver metal which is being held against which you may take paper shorts when the opportunity arises from time to time (but never in excess of 20% max of your long position)*.

 

Also, holding silver miners may lower your allocation of the physical long, but not more than 25% say

 

a sensible approach in a long-term bull market don't you think?

 

*this is similar to what S.Thomson advocates

 

edit - actually 20% is too high, 10% short max would be more sensible imo, if you wish to gamble on the corrections

I am flexible enough to move my "Core" (inflation protected) positions around, and they need not remain in precious metals, or even in metal commodities.

 

For instance, I consider owning my own property in HK a "core position." I am now thinking about selling it- after a gain of 50% or so. But I may not do that until I have worked out an alternative place to park a 7-figure inflation-protected investment.

 

Over the years, MY MAJOR CORE INVESTMENT moved from:

 

+ London property, to

+ Junior gold stocks, to

+ HK property, to

+ Less HK property and HK$ cash

 

Where next?

 

I am seriously thinking about buying property in the US. And if silver gets cheap enough (under $27?), I may give it some thought as a CORE position

[G0ldfinger]

You have an alarmingly NARROW view of how traders operate !

 

Chances are they switched OUT OF SILVER into something that looked cheaper, it might have been a stock, a different future, or even another precious metal.

 

As an example: OIL IS LOOKING CHEAP AGAIN, when you compare it to the expensive Gold price.

Yes, I agree that oil is not particularly expensive here. My 2016 call options are now almost as cheap as back when I bought them.

 

My problem is the kind of high frequency trading some people advocate here. I would swap investments much more infrequently, waiting until things are really cheap, or really expensive.

 

Someone who trades all the time has to worry much more than someone who is in a core position in very strong bull market. And the frequent traders have more opportunities to get things wrong, maybe massively wrong, especially when they are betting against structural long term bull markets (some on here bet against gold & silver !!!!!!! ).

[drbubb]

Yes, I agree that oil is not particularly expensive here. My 2016 call options are now almost as cheap as back when I bought them.

 

My problem is the kind of high frequency trading some people advocate here. I would swap investments much more infrequently, waiting until things are really cheap, or really expensive.

 

Someone who trades all the time has to worry much more than someone who is in a core position in very strong bull market. And the frequent traders have more opportunities to get things wrong, maybe massively wrong, especially when they are betting against structural long term bull markets (some on here bet against gold & silver !!!!!!! ).

I trade often - but mostly in small increments.

 

A major move into one of the CORE assets that I mentioned above is an infrequent affair.

 

I am not ready to make a major move into Crude, but I might start nibbling soon. I never got a true major CORE into "the silver trade", as some here did. I admit that I missed that boat. But I don't worry, I don't expect to catch every boat to paradise. But there's another boat leaving for another favorable destination SOONER THAN YOU THINK - provide you do the research to find it.

[G0ldfinger]

Hmm, I have a nice core position in oil. It is not too large, but highly levered at minimum downside risk. I saw some of it almost double from where I bought it, now it has fallen back. But it is a medium term thing that I will hold to 2016, so I don't worry, as I can't see any change in the fundamentals. Therefore I didn't attempt to trade anything recently.

[drbubb]

20,000 May puts - Gone !

 

= = = = = = = = = = = = =

Status Filled at $6.85

Symbol -SLV110521P40

Description PUT (SLV) ISHARES SILVER TR MAY 21 11 $40 (100 SHS)

Action Sell to Close Put

Route CITIGROUP GLOBAL MARKETS, INC.

Order Type Limit at $6.85

= = = = = = = = = = = = =

 

 

Not the best price of the day, but I let 40% of my position go, because the cts expire on Friday

 

I am Bidding on Jan $27 and Jan $26 Calls

[azazel]

20,000 May puts - Gone !

 

Status Filled at $6.85

Symbol -SLV110521P40

Description PUT (SLV) ISHARES SILVER TR MAY 21 11 $40 (100 SHS)

Action Sell to Close Put

Route CITIGROUP GLOBAL MARKETS, INC.

Order Type Limit at $6.85

 

Not the best price of the day, but I let 40% of my position go, because the cts expire on Friday

 

Bidding on Jan $27 and Jan $26 Calls

Sorry,I just don't understand what your on about. I wish you would do a plain English version so that those who don't trade can understand what you are doing. See, an ounce is an ounce when I buy and hold...

[drbubb]

Thanks for asking.

Sorry,I just don't understand what your on about. I wish you would do a plain English version so that those who don't trade can understand what you are doing. See, an ounce is an ounce when I buy and hold...

Have you ever seen an Options Trading confirmation before ?

Many on GEI should be able to translate what I posted, but those who do not trade options may not.

 

The above was an excerpt from the actual confirmation that I received when the trade was filled!

It was late at night I posted the above excerpt quickly and went back to bed.

 

I will take you through what it means, but first go back and look at the HISTORICAL RECORD of my positions:

 

UPDATE: Friday Close: 13 May:

(Silver : $35.36 / SLV : $34.39 / USD : $75.71 )

 

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

SLV$34.39

Cash--- : - - - - -- $ 0 : - $4,152 K : - $4,670 K :

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

Value- : --- $3,536 K : - $0,000 K : - $0,000 K :

Opt.Oz+/--- 000,000 : -- 080,000 : -- 020,000 : calls

Opt.Oz -/--- 000,000 : -- 050,000 : -- 000,000 : puts

Note --- : --- - None - : opt. ABC - : -- opt. D :

Opt.Val : --- - None - : - $0,764 K : - $0,132 K :

===== : ===========================

TotValue: -- $3,536 K : - $4,916K : - $4,802 K :

Vs B&H: --- 100.0% - : -- 139.0% : -- 135.8% :

======

Options:

A / jun.$30c - bot at $6.00 / 30,000 x $5.27close = $158K

B / jul. $29c - bot at $6.35 / 50,000 x $6.42close = $321K

C / may$40p- bot at $3.61 / 50,000 x $5.70close = $285k

D / oct.$30c - bot at $6.50 / 20,000 x $6.62close = $132k

 

See any May Silver puts there?

 

Of course you do. You will see the "C" options, in Alt.Port #1:

"C / may$40p- bot at $3.61 / 50,000 x $5.70close = $285k"

 

(What this means is, for Alt.Port.#1):

I bought May $40 Put options on 50,000 shares of SLV at an average cost of $3.61.

And at the close last Friday, they were worth $5.70 per SLV share, or $285,000.

 

Here's the excerpt from the confirmation for the trade done on Monday:

"Status Filled at $6.85

Symbol -SLV110521P40

Description PUT (SLV) ISHARES SILVER TR MAY 21 11 $40 (100 SHS)"

 

In other words, this refers to: SLV Puts struck at $40, expiring: 2011-may-21.

 

20,000 were "gone" (sold) yesterday at $6.85, that's $137,000 to be added to cash.

I made a profit of $3.24 per oz. , or $64,800 on those options.

(The profits helps to hedge the unrealised loss on the SLV Calls that I hold.)

 

I sold a little "too soon", since they closed at $7.20

But the May puts will expire on Fiday, so I will sell out my entire Put position before then.

 

Bob Chapman and other have said that it is "too dangerous to trade", and you have to Buy and Hold your portfolio if you want to make money. My objective here is to show that intelligent trading, using options, can outperform a Buy & Hold portfolio. Alt. Port #1 is the more actively traded portfolio, and Alt. Port #2 is the less active one. Essentially, I am waiting for an opportune moment on #2 to go long again, to replace the Silver ounces sold at $48. I don't want to be out of the game entirely, so I bought calls on 20,000 SLV shares last week. Probably within this week, I will top up to 50,000 SLV shares or options, so that I can match Bob Chapman. Ultimately, I will exceed Bob's position with both Alt.#1 and #2, since I have the cash to do it. But I am in no hurry as long as I think there is a high probability that the correction in silver is still underway.

== == ==

 

NOTE on Portfolio Size: Is it too big ?

====

BTW, these are "fantasy portfolios" and so while I am tending to do actual trades to record the prices of my Buys and Sells, I am not trading in the same size as I show in Alt. Port #1 and #2.

 

Some have commented that the portfolio seems too big. I started with such a large fantasy amount because I was trying to show a portfolio of the size that I thought Bob Chapman might be trading.

 

I am now thinking of cutting all the positions to 1/10th of that size, since other traders here might relate better to a smaller portfolio, and it would be closer to the sizes that I am actually trading.

[drbubb]

20,000 May puts - Gone !

Status Filled at $6.85

. . .

Bidding on Jan $27 and Jan $26 Calls

Before the Monday close, I bought Jan $27 Calls.

The following is from the Confirmation:

 

= = = = = = = = = = = = =

Status Filled at $8.10

Symbol -SLV120121C27

Description CALL (SLV) ISHARES SILVER TR JAN 21 12 $27 (100 SHS)

Action Buy to Open Call

= = = = = = = = = = = = =

 

(To translate):

 

I bought Calls on SLV:

Jan.2012 Calls with a strike price of $27, and paid $8.10 per share.

 

I will record this as a 20,000 option Long position for Alt.Port. #1.

 

My breakeven here is SLV-$35.10, and I am betting that Silver/SLV will be higher than that on 21.Jan.2012.

I could have bought SLV at $32.85 on the close, so I am paying more than that "for the optionality."

 

With options if I am wrong, and silver is lower, I will keep some cash, to buy it at the lower price.

 

There's a long time until Jan. 2012.

[drbubb]

TWO PROS talk about Silver

 

(1)

Silver’s next key support level, and bullion vs. gold stocks

FSN Metals Update with David Morgan

MP3 : http://www.netcastdaily.com/broadcast/fsn2011-0513-1.mp3

 

(2)

Robin Griffiths interviewed by Eric King

Saturday, May 14, 2011

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/14_Robin_Griffiths.html

 

Neither of them are "Buy & Hold Monsters Purists"

[frizzers]

 

 

Neither of them are "Buy & Hold Monsters Purists"

Oh, come on ...

[G0ldfinger]

Oh, come on ...

Yes, they're not exactly herding the sheeple into shorting silver, are they?

 

I mean, if someone like David Morgan has a big core position and is taking some(!) off the table in such an intermediate(!) price spike, fine.

 

But if someone essentially completely misses out on the rise, has no core position, and then propagates shorting the commodity, I would caution people, because apparently this person does not understand the real background of this market. Someone like Ker comes to kind. (Stopped clock being right twice a day...)

[HPCsoYESTERDAY]

TWO PROS talk about Silver

 

(1)

Silver’s next key support level, and bullion vs. gold stocks

FSN Metals Update with David Morgan

MP3 : http://www.netcastdaily.com/broadcast/fsn2011-0513-1.mp3

 

(2)

Robin Griffiths interviewed by Eric King

Saturday, May 14, 2011

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/14_Robin_Griffiths.html

 

Neither of them are "Buy & Hold Monsters Purists"

 

both of these experts are advocates of a core position

[drbubb]

Oh, come on ...

I think some of these guys are truly dangerous to the wealth of their followers. (!!)

 

They pretend to "know the number" at which Gold will peak - but do they?

 

Most reading here are to young to recall the 1980 peak in Gold. Many were expecting Gold to peak at $1000 - a nice round number,

 

I knew people who started buying at $350 or $450 and were holding out for that number ($1,000) before selling. The peak came "too soon" and they wound up holding on, expecting that number to be reached eventually. It "never" happened - at least not for decades. And Gold fell all the way to $250 before it got back to $1000 plus.

 

I want folks here to be aware of that risk.

 

I like Morgan's approach. He will be holding metal at the top, within his core position - but he is not afraid to take advantage of excesses that arise along the way.

 

Jim Sinclair, on the other hand, says: "never sell." You don't need to, he claims. Gold will eventually be exchange-able for Gold backed currency.

 

Maybe he will be right. But perhaps not. He has already shown that he is not infallible.

[drbubb]

both of these experts are advocates of a core position

I have no problem with that.

 

But I recommend FLEXIBILITY in how you define it, and how you hold it.

[drbubb]

Yes, they're not exactly herding the sheeple into shorting silver, are they?

 

I mean, if someone like David Morgan has a big core position and is taking some(!) off the table in such an intermediate(!) price spike, fine.

 

But if someone essentially completely misses out on the rise, has no core position, and then propagates shorting the commodity, I would caution people, because apparently this person does not understand the real background of this market. Someone like Ker comes to kind. (Stopped clock being right twice a day...)

You can see what I am suggesting (for those who are willing), and what I am doing with my own money by watching the portfolios on this thread.

 

Do any of those other folks show it so clearly ?

[G0ldfinger]

I knew people who started buying at $350 or $450 and were holding out for that number ($1,000) before selling.

They should have listened to Sinclair back then who sold for his clients at $400.

 

Jim Sinclair, on the other hand, says: "never sell." You don't need to, he claims. Gold will eventually be exchange-able for Gold backed currency.

 

Maybe he will be right. But perhaps not. He has already shown that he is not infallible.

He might be right that gold won't drop as much as in the 1990s. On the other hand, why hold on to gold once it is remonetized. Other assets might offer a higher return by then. But for now it is gold.

[drbubb]

They should have listened to Sinclair back then who sold for his clients at $400.

 

He might be right that gold won't drop as much as in the 1990s. On the other hand, why hold on to gold once it is remonetized. Other assets might offer a higher return by then. But for now it is gold.

That is more than 50% off the High !

(I hope and expect to do better than that.)

 

Jim Dines got out at a higher level that that I believe.

[G0ldfinger]

That is more than 50% off the High !

(I hope and expect to do better than that.)

 

Jim Dines got out at a higher level that that I believe.

Sinclair sold there for his clients because this was the debt equilibrium price. This same equilibrium price is over $16,000 as we speak, but you want people to regularly short PMs. Come on, don't sweat the small stuff! Furthermore, you know that Sinclair himself then shaped the top at $850 (he didn't just "call" it, he CREATED it!). He sold his gold there because he "knew" it was overvalued (by over 80% according to his gold-debt model).

 

http://gold.approximity.com/since1970/External_Debt_Equilibrium_Gold_Price_LOG.html

[G0ldfinger]

Soros sold $800M gold recently. He must read too much Bubb or Ker. Paulson is holding on to it, I guess he has done his research. Boosting mining companies holdings: Paulson does what I do right now. I hope Soros won't end up in the poor house in his old age.

 

http://www.bloomberg.com/news/2011-05-16/soros-sold-most-of-his-gold-etp-holding-during-first-quarter-filing-shows.html

Soros Sells Gold ETPs as Paulson Keeps Bet on Bullion Extending Record Run

...

Soros Fund Management LLC sold 99 percent of its holding in the bullion-backed SPDR Gold Trust, all 5 million shares in the iShares Gold Trust (IAU) and cut stakes in NovaGold Resources Inc. and Kinross Gold Corp., a government filing yesterday showed. Paulson & Co. maintained 31.5 million shares in the SPDR Gold Trust, and boosted holdings of mining companies including Barrick Gold Corp. and Gold Fields Ltd., its filing showed.

[drbubb]

Buying 20,000 calls, at the Offer price.

 

SLV JAN 21 2012 27.00 CALL

Last [Tick] 8.10[-]

% Change 0.00%

Bid 7.80

Ask 7.90

============

 

MISSED the better prices earlier - Tied up with a social engagement

[drbubb]

Soros sold $800M gold recently. He must read too much Bubb or Ker. Paulson is holding on to it, I guess he has done his research. Boosting mining companies holdings: Paulson does what I do right now. I hope Soros won't end up in the poor house in his old age.

 

http://www.bloomberg.com/news/2011-05-16/soros-sold-most-of-his-gold-etp-holding-during-first-quarter-filing-shows.html

Haha.

 

Let's see who is making money on these moves.

Paulson's moves in the Gold market, such as buying Anglogold shares, have been less than brilliant