TAH, would you like give me some analysis about Gold. I need to sell my phisycal gold to buy a new property in my hometown, but I don't know if this is the right moment to sell my gold. I see huge volume at low, is it stopping volume for further drop or is it MM's buying? what do you think for long term period? Sorry my poor English. Oh I think the news on Saturday about bad China's trade balance maybe give big gap on Monday. Thanks. {image} {image}
I won't make a direction call on gold but if you need to sell to make your purchase but you don't really want to sell you can replace your physical investment with some options for a much smaller investment but still participate if gold goes higher.
Example:
You own 100 shares of GLD.
Sell 100 shares for cash gain of $12,260. (GLD current price = $122.60)
Buy 1 March 115/130 Call Spread for a cost of $785.
If GLD goes to 130 or higher you make $715 with the Call Spread for a ROI (return-on-investment) of 91% and $785 at risk.
If you hold 100 shares of GLD & it goes to $130 you make $740 for a ROI of 6% and $12,260 at risk.
Benefits of Call Spread:
1-Much less capital to spend
2-Less $ at risk (If price falls below $115, your losses stop)
Negatives of Call Spread:
1-If price goes above $130, you don't participate in the additional gains unless you roll your call spread to higher strike prices.
2-Delta is less than 100% so if price spikes in the short term, you won't see the same spike in value in the call spread so better plan on holding for a longer time to realize the gains. This is only a problem if you don't want to hold for the length of the spread (March). You can choose a shorter term & roll when the expiration comes but better know a little more about options to do something like this. There's usually a little slippage so every time you roll, you'll lose a bit so best to pick the longer-term call spread so you're not rolling so often. GLD has very liquid options so you can even go out as far as Jan, 2015 if you want.
Probably off topic for this thread but just my thoughts on the question.
