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Posts Tagged ‘gold’

Consider Kirkland Lake (KL) As Gold Prices Start to Regain Upward Momentum

Monday, June 15th, 2020

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

With the broader markets paring recent gains it appears to be a good time to be in precious metals and gold related stocks. Check out the following two articles which discuss the upside potential and a recent price upgrade – 3 Gold Stocks to Buy in June and Roth sees gold rallying to $2,200 by 2022, upgrades Kirkland Lake.

Technicals

From a technical perspective, KL has come into some notable support near $36 that buyers have defended thus far. There are a few more layers of support between $34.50 and $35 that originate from a weekly chart and technical traders may look to defend these levels in the event the stock dips a bit further. In addition to the strong downside support, a sharp rise in spot gold in the past week stands to keep related stocks well bid. Also, the popular gold miners ETF (GDX) made a notable bullish breakout last month and the technical outlook suggests this sector could be on the verge of a major bull run.

KL Chart June 2020 Gold stock options

KL Chart June 2020

If you agree there’s further upside ahead for KL, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.

Buy To Open KL 17JUL20 30 Puts (KL200717P30)
Sell To Open KL 17JUL20 35 Puts (KL200717P35) for a credit of $1.33 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when KL was trading near $37.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $131.70 and your broker would charge a $500 maintenance fee, making your investment $368.30 ($500 – $131.70).  If KL closes at any price above $35 on July 17, both options would expire worthless, and your return on the spread would be 36% (411% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 13, 2020

IBD Underlying Updates June 13, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Barrick Gold (GOLD) Poised to Advance After Breaking to a Seven-Year High

Monday, April 27th, 2020

I invite you to check out our Track Record during this difficult economic time.  In the first quarter of this year the market fell by 23%.  The actual options portfolios carried out at Terry’s Tips increased by 46% during this quarter.  Quite a difference, something that we are quite proud of.   This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Several analysts believe Barrick Gold is a good investment, here are two of them – Barrick Gold (GOLD) Moves to Strong Buy: Rationale Behind the Upgrade and What Makes Barrick (GOLD) an Attractive Investment Option.

Technicals

Barrick Gold recently broke to a seven-year high after crossing above the 2016 high near $23. Similar breakouts are seen in related instruments such as the gold miners ETF (GDX). Further, GOLD is up more than 100% since the bottom in late March. The bottom correlates well with the S&P 500 yet the index has gained roughly 30% since then, in comparison. Precious metals and related stocks typically gain when equities are under pressure and the out performance during a bullish rally in stocks speaks to the strength and demand for precious metals at this time. Lastly, GOLD was added to the IBD Top 50 list this past week along with Kirkland Gold (KL), and Franco Nevada (FNV) was added last week. The sudden addition of these three stocks adds to the bullish case for this sector.

GOLD Chart April 2020

GOLD Chart April 2020

If you agree there’s further upside ahead for GOLD, consider this trade which is a bet that the stock will continue to advance over the next six weeks, or at least not decline very much.

Buy To Open GOLD 05JUN20 24 Puts (GOLD200605P24)
Sell To Open GOLD 05JUN20 27 Puts (GOLD200605P27) for a credit of $1.70 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when GOLD was trading near $27.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $168.70 and your broker would charge a $300 maintenance fee, making your investment $131.30 ($300 – $168.70).  If GOLD closes at any price above $27 on June 05, both options would expire worthless, and your return on the spread would be 128% (1198% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates April 25, 2020

IBD Underlying Updates April 25, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Using Options to Prosper in Down Markets

Monday, September 26th, 2011

Last week was the worst week for the market for almost three years.  The S&P 500 fell by a whopping 6.6%.  Investors seem to be dumping everything.  Usually, when stock markets crash, gold moves higher, but last week, gold fell $100 in a single day, the worst one-day drop in its history.  Silver and other commodities were crushed as well.  Billions of dollars are going into treasuries even though over half the S&P 500 companies have higher yields. 

What do you in times like these?  Would you be surprised if I said that a well-designed options portfolio might be the perfect solution?

Using Options to Prosper in Down Markets

At Terry’s Tips, we conduct an actual portfolio which we call the 10K Bear.  We believe that this portfolio offers a better alternative than any other as a downside hedge vehicle.  Even better, the market does not have to go down for you to make a gain.  A flat or slightly higher market also makes weekly gains most of the time

Here is the current risk profile graph for our 10K Bear portfolio.  It shows the loss or gain that should result from a $5200 investment in SPY put options on September 30 when the Weeklys expire in a few days.  Last Friday, SPY closed at $113.54  (This graph assumes that today’s option prices – VIX – will remain unchanged – if VIX falls significantly over the next 4 days, the gains would be less than the graph indicates.)

The graph shows that about an 18% gain would be made if the stock stays flat, and a higher gain would result if SPY fell up to $3 (if it fell that far, we would make an adjustment to extend the downside potential).  Commissions would reduce results somewhat as well. The stock could go up as high as $116.50 before a loss would occur on the upside.  Clearly, this is an excellent hedge against a market drop, and it has the added advantage of also making gains if the market is flat or slightly higher.

How do we create an options portfolio like this?  It is the strategy we use when we want to bet on the direction of the market.  Most of the portfolios at Terry’s Tips make the assumption that we have no idea of which direction the market will take in the short run.

The 10K Bear portfolio involves buying put options with several months of remaining life and selling short-term (Weekly) puts to someone else.  The puts we sell are mostly at lower strikes than those we own.  Rather than trying to sell short-term puts which maximize the amount of short-term decay we could collect, we aim to sell just enough short-term decay to cover the decay of the longer-term puts we own.

In Greek terms (pardon me for using Greeks if you are not familiar with them), we seek to maximize the negative net delta of the portfolio while maintaining a positive theta.  As the stock fluctuates during the month, adjustments are often required to maintain these two goals.  (Adjustments we made in the August expiration month enabled the 10K Bear  portfolio to gain 55% while the original positions at the beginning of the month projected a gain of less than half that amount).

While this may seem to be a little complicated right now, if you become a Terry’s Tips subscriber, it should all become quite clear.  You can follow how the 10K Bear operates over time (as well as several other bullish-leaning portfolios) so that you can do it on your own if you wish.  (Most of our subscribers don’t do it on their own, but sign up for the Auto-Trade program at thinkorswim and have them execute the trades automatically for them).

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Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins