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« Agnico-Eagle Mines Limited: Buy, Hold, Sell | Main | Gold, Silver and Unhedged Producers »
Saturday
Jan222011

As Gold Falters, SK OptionTrader Banks Profits of 13%, 17% and 13%

Despite gold and silver undergoing a sizeable sell off in that past few weeks, our premium options trading service SK OptionTrader has just closed three trades and banked profits of 13%, 17% and 13% on each.

This brings our total number of closed trades to 64, with 62 of those being closed at a profit. Our average return per trade including losses is 42.40%, with our model portfolio being up 135.97% since inception, or an annualised return of 86.45% assuming profits are not reinvested.

SK OptionTrader Acc Profits 220111

With the reinvestment of profits $10,000 invested in accordance with SK OptionTrader signals and our model portfolio would now be worth $31,604.82.

On December 7th 2010 we sold out of all our GLD call option positions.

By mid December 2010, having taken huge profits on call options during the prior few months, (You can see some updates here: SK OptionTrader closes 5 trades for average profit of 94%, Yet More Profits Banked For SK OptionTrader and How have SK OptionTrade Recommendations faired after our Sell Signals) we decided that gold gains would be limited over the Christmas and New Year holiday period.

On the 12th December 2010 we wrote to our subscribers saying:

“... we are wary that we are entering the holiday season soon and trading will likely be thin, with big players not returning to the market until January. A large component of options trading is not only getting the direction of the underlying correct, but also the correctly timing when the move will happen. This is due to the decay of the time premium (Theta) that one is exposed to when purchasing an option... We are however in favor of taking out some bullish credit spread positions, where we would be short Theta, and holding them for a month or so. This allows us to benefit from an upwards or sideways move in gold over the coming weeks, with our position hopefully gaining value each day as the time premium decays, since we are of course short Theta. We are looking at taking these bullish credit spread positions in GLD January-2011 puts with strikes in the $129-$126...”


We then signalled for our subscribers to take a bullish vertical credit spread position on the 13th December, and to take two more on the 16th December. The following summaries how these trades played out:

Bullish Credit Spread - 13th December 2010
Sold GLD Jan 22 '11 $128 Puts for $0.68 and Bought GLD Jan 22 '11 $127 Puts at $0.55.
Both expired worthless on 22nd January 2011
13% Profit in 40 days

Bullish Credit Spread - 16th December 2010
Sold GLD Jan 22 '11 $128 Put @ $0.92 and Bought GLD Jan 22 '11 $127 Put @ $0.75.
Both expired worthless on 22nd January 2011
17% Profit in 37 days

Bullish Credit Spread - 16th December 2010
Sold GLD Jan 22 '11 $127 Put @ $0.73 and Bought GLD Jan 22 '11 $126 Put @ $0.60.
Both expired worthless on 22nd January 2011
13% Profit in 37 days

Essentially what these trades boiled down to is receiving a modest premium if GLD was above $128 on January 22nd, equivalent to a gold price of roughly $1315.

Since we were correct in our prediction, we gained $0.13, $0.17 and $0.13 for every dollar risked in each of the trades, profits of 13%, 17% and 13%.

If our view was incorrect, our losses were limited at $1.00 for every $1.00 risked in the trade, i.e. our losses were limited. So if GLD had been at $125 upon expiration we would have lost our $1.00, but if it was a $100 or $75 then we would have still only lost $1.00.

The reason we liked this type of trade at the time was that we had the view that gold was either going to go sideways, upwards or slightly down, but it would not fall dramatically. Usually such an ambiguous and unsure view cannot be profitable in trading stocks or futures, however with options trades they can be structured to reward the investor for such a view, as they rewarded us and our subscribers who decided to put on similar trades.

Options are one of the few instruments that can be used when one has a non-directional view. Whilst we would all love to be able to pick which way gold or another asset is going to go, the reality is that often we may not have a strong view, if any at all.

If you would like to add this type of versatility to your trading then we recommend that you consider options trading. There are many misconceptions that all options trading involves unlimited risk, but in fact although some positions do expose the holder to unlimited risks, if trades are structured in the right way one can limit the risk in any trade.

At SK OptionTrader we only recommend limited risk strategies, always telling our subscribers the maximum downside in a worst case scenario.

If this sounds like something you are interest in then feel free to check out our full trading record or contact us if you have any questions.

Alternatively you can subscribe below, for just $199 per 6 months or $349 for a year.

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