Newbie options metals strategy

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#1 Tue, Aug 30, 2011 - 4:59pm
Canada
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Newbie options metals strategy

Hi there,

I have been trading the metals (gold and silver) pretty much continuously for a year and a half. I have core positions (phys, core reserves in bullionvault). All my profits get ploughed into my core holdings.

So far I have been trading CFD's with IG markets. I like this as its straightforward leverage. I use a combination of pyramids of rolling positions and swing trading generally. However I am attracted to the concept of options - increasing the leverage and reducing the potential downside (no margin) Now I must confess at present my knowledge is limited to some internet reading and I have ordered a book from amazon recommended by a fellow Turdite on trading options (not yet arrived).

I have had two (simple) thoughts..

1) buy a tranche of calls on a major dip

Generally in metals when my trading account is taking a hammering and all is woeful that is usually the time to do the unpalatable and buy the weakness.

Gold has been surprisingly buoyant today. However had it fallen back to say 1680 and my account gone very red. Would that be a perfect opportunity to buy say December 1680 calls? I would presume the calls would get cheaper the further away from spot you go. Therefore if a major dip occurs and you buy a batch of option calls a bit above spot then unless the bull run is over the odds are such options will be in the money without too much time.

2) Buy long dated out of the money calls

Most of us on here believe the bull has at least two more years in it. Theoretically we are entering a period of massive volatility and surging prices. The recent >100 dollar moves have forced me to reduce my cfd leverage slightly to compensate. Would it make more sense to buy a tranche of call gold options say 1-2 years in the future which are a reasonable distance out of the money so as to be very cheap. If Schiff/Sinclair/TF et al are right then they should be well in the money in a couple of years and could be sold early if the opportunity arises. I like the idea of sticking a few thousand quid down on a large speculative leveraged one off trade. I mean the inflation adjusted high of gold from 1980 is $2500 - that screams more upside to me.

Any thoughts? Also I would prefer to use a different platform to my cfd setup. I notice my choices of contract with IG markets are limited i.e. silver/gold oct/dec 2011 only. Who would you recommend (ideally UK)?

Canada

Edited by: Canada on Nov 8, 2014 - 5:16am
Wed, Aug 31, 2011 - 1:42pm
Canada
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any takers?

32 views, no replies...I wont bite. :)

Wed, Aug 31, 2011 - 4:52pm
madcow
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Im still new to the game but

Im still new to the game but i will try to help.

I've been told to buy in tranches (not all at once). Im still trying to teach myself to do this as i get over excited on price drops. Also i dont have loads of money laying around so buying in tranches isnt always possible haha.


I like to buy OTM calls that are under 1$ but in reasonable striking distance. Seems to work for me so far (cept this time around since i jumped teh gun before the big dip in SLV). Everyone is different tho, and others will tell you other things.

I also like to buy months out. Well i should say, im working on shifting to this hehe. Currently im heavy oct light jan. I will unload my Oct's first and move more to jan tho. And eventually further into the year or jan13. Buying options close to exp is said to be for the big dawgs. I am no big dawg.

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