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« The Bottom Line on Gold, the Dollar, and the Euro | Main | UKIP Nigel Farage takes on Jose Manuel Barroso - September 2012 »
Friday
Sep142012

SK Option Trader Outperforms Every Gold Mining Stock Using Options

To cap off our recent focus on mining stocks, in this article we look at how mining stocks performed over the same time frame in which we returned 70% to subscribers.

As we’ve communicated before, the traditional justification behind investing in gold mining stocks is something akin to the following:

“The simplest way to speculate on rising gold prices is to buy gold itself, this is no secret. However some investors and traders wish to add leverage and optimize their position to increase their exposure and profits. Traditionally, investors would buy gold mining stocks to increase exposure to the gold price. The rationale behind this theory is arguably based on sound accounting principles but fails in practice…

…Not too long ago when financial markets and instruments were far less flexible and available than they are now, leveraged exposure to gold was very hard to achieve. Gold stocks used to be the best way for the ordinary investor to increase exposure in the search for higher returns…”

We avoid gold mining stocks because

  1. Gold stocks don’t accurately track the gold price, often the relationship is inverse
  2. 2. Mining stocks are exposed to numerous economic, political and managerial risks that are not compensated for. These risks are elaborated on in “Are Gold Stocks the Real Barbarous Relic?

This chart gives weight to our attitude towards mining stocks:

Counter to the traditional wisdom of mining stocks outperforming gold, the reality is quite different. Gold has returned over 4x the HUI (shown by the red line) gold mining index.

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To further communicate our point, we now turn to the performance of SK Option Trader relative to gold mining stocks, and gold.

Our most recent trade returned 70.24% in 50 days. How did mining stocks perform over this same time frame? HUI – the most watched gold stock index returned 14.24%.

Relative to gold’s 6.93% rise, stocks didn’t do too badly. Having said that, SK Option Trader’s 70.24% gain means we still managed to return 4.9x what HUI achieved.

Below are the 5 best performing stocks that make up HUI, charted over the same time frame our 70.24% winning trade was open.

CDE’s 48.96% was far and away the best return and not far off the 70.24% we achieved. But this is only one stock of many that make up HUI. It would take a talented stock picker to have bought into CDE over the other 16 stocks that make up HUI. (It also worth noting that CDE is actually DOWN 7% in the last year)

Contrast the best performers to the worst, below:

The 4 worst miners of the 16 that make up HUI were all down or unchanged – over a period where gold rose 6.71%.

As an example, buying 20 call options in our recommended 70.24% winning trade would have cost $1680. Exiting that position would have returned $2860, netting $1180 in profits. To generate the same profit from gold stocks, a comparatively massive $8287 would have needed to have been invested in HUI.

Investing the same amount as our option trade in gold stocks ($1680) would have returned a meagre $239.

Investing $8287 in gold stocks to generate the same net profit as our option trade leaves a much larger sum of money at risk and can be prohibitively expensive to generate the same profit for some.

From this we can make a few conclusions:

 

  1. SK Option Trader returned more than the mining sector.
  2. SK Option Trader returned more than the best performing mining stock.
  3. Unlike some of the mining stocks, when gold increased in value, so too did our portfolio.
  4. Since 2007 gold has outperformed mining stocks nearly 6x over. 
  5. Since SK Option Trader began in August 2009, we’ve returned 489.37%. This is 6.34x greater than gold’s return and 17.5x greater than return on the HUI mining index.

 

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People have been calling for a turnaround in the performance of mining stocks since the day we started and they continue to preach to this day. Time and again we return profits above and beyond the miners. Our track record speaks for itself. The miners’ does not. What team would you rather be on?

Our success is partially based on the leverage and flexibility options allow. Unlike gold stocks, options always track the price of gold and give certain outcomes. Options’ other benefits include:

·         Flexible timing, one can speculate on the gold price next week or in two years or more

·         Downside is known and limited

·         Speculating on increasing, decreasing, or unchanged prices is achievable

·         Upside is unlimited, with huge returns in short time frames easily achievable

·         Customizable leverage

 

Also note that we closed another winning trade last night for a profit of 61%, the charts and statistics will be updated shortly.

If you wish to join a winning team then please become a subscriber via any of the buttons on this page.

Our trading success rate is 91.26%

94 profitable trades out of 103.

Our model portfolio is up 489.37% since inception

An annualized return of 77.63%

An average return of 35.30% per trade

Our annual performance figures are as follows:

2009 We made a profit of 23.89%

2010 We made a profit of 158.66%

2011 We made a profit of 40.95%

In 2011 we outperformed:

S&P by 42%

HUI by 53%

Gold by 31%

Silver by 41%

The 2011 Annual Report by be accessed via this link.                                                                                        

 Also many thanks to those of you who have already joined us and for the very kind words that you sent us regarding the service so far, we hope that we can continue to put a smile on your faces.

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