Monthly Digger - December 2007

[Gold Majestic]

Like I said, it was a synthetic short. I actually expect AEM to decline at some point between now and OPEX. I do not want to exit my long position. That's why I traded an "in the money" call--- the January 50's.

 

At the time, the time premium was $1.30. When I considered the trade, the night before, the 55's had a premium of only 90 cents. I'm not going to institute a position that won't yield me less than $2.50 if I'm right--- and within the next 6 weeks (one half of a 3 month cycle).

 

I'll trade options from 3 months to the nearest month as covered calls to capture the time premium as it "rots" very substantially in that period. And it "rots" like a stinking corpse as the underlying secutity declines in that time period. I prefer to sell calls in small wave 2's "in the money" and "out of the money" in larger wave 4's.

 

If I think the miners are going down, I'm not afraid to short the stocks that trade actively. And I've made a lot of money on the short side after I went bearish in late September through covered calls and outright shorts on ABX and especially AEM. Similarly, I traded G.TO long and short. I have never traded "naked" puts in anything. You're totally at the mercy of the market maker.

 

I've never posted my short trades as I don't want to face the derision that I'd expect from other members of this board.

 

I expect that by the end of next week the markets will have fallen--the SPX, the DOW, RUT, and the Naz. If you read my posts, I expected a top in the miners by Thursday or Friday of last week.

 

I'm short the broads in a small way via DXD. I took profits on Friday afternoon. I may add short via QID and ROM if Wednesday is a "downer". There's a gap to fill.

 

I doubt the miners will escape the decline that I forsee.

 

But I do think we're close to wave 3 of 5. And I want to be on board that train with as much capital as I can muster.

634548[/snapback]

 

BV, I read your posts but they seemed to contradict one other. On Wed 12/26, you "through in the towel" entering gold stock positions based on gold breaking out with an impulse up in the miners and a follow-up chart indicating the XAU A-B-C down was complete.

 

Wed, 12/26:

"The towel:

Threw it in.

Long GG, AEM, CDE and EGO.

No-where near the best levels of the day.

Got EGO just before the last 30 minute smackdown.

Offside on everything but CDE by the close."

 

"The solid breakout of GOLD did it.

Moreover, we seem to be in an impulse up in the miners.

Finally, the XAU retracement has exceeded normal bounds.

I gave myself a margin of error to 172.50 on XAU."

 

Then a few hours later in the evening in your next post you commented:

 

"Trend changes:

We may have a completed impulse up on HUI.

And if you look at MACD, it was just enough to change the trend to positive.

Full Stochastics provided the requisite double-dip to confirm the abc correction.

Buy any dips. If the correction ended last week, the next dip will be a corrective wave 2 of 5 up.

I think we enter wave 2 on Thursday the 27th (or saw it today). It will be 34 trading days from the November 7th top---a fib number.

XAU looks like 5 waves aren't in yet. That's why so unsure about the turn."

 

I understand you're wanting to take out insurance, just don't understand your timing - going long the day you think a corrective 2 of 5 is commencing.

 

But I have to strongly agree with the "someone" who, "once described selling covered calls as 'a hedge against gains' ". I would add, especially with volatile stocks such as gold stocks in a bull market.

 

I would advise investors to sell covered calls as insurance on stocks ONLY after a probable top and ONLY on stocks with LOW Betas. And otherwise to sell only out-of-the-money covered calls on stocks in corrective rallies at probable tops in bear market sectors. (There are plenty of those around these days.)

 

If one had sold AEM Jan 19 '08 "50 Strike" Calls last Wed, they were probably worth around 3.60 or so. Today, with 22 days left to OPEX, the bid is $5.40. Say you have a 1,000 shares of AEM that you wrote calls against. The shares would have made you 54.50-52.00= $2.50/share or $2,500 to date. Writing the calls you would have received approx. $3,600 less commission. But now that the 10 calls are worth $5,400, you would have lost $1,800 plus commissions. 1,800/2,500=72%. You would have just wiped out 72% of your gains! AEM, being a high beta, volatile stock, and being that it just broke out of a 6-week correction in a bull market, could very easily go back and retest $59 by this coming Friday. There would then be 19 days left, and the calls would then be worth approx., $9,300. You would have made 59-52=$7000 on the shares but instead lost 9,300-1,800=$7,500, $7,500-7,000= $500.00 LOSS.

 

"A hedge against gains" and then some. IMO, not worth the risk.

 

Again, IMO, if you must sell covered calls as insurance, do so at probable tops, not bottoms, and do so with low beta stocks. (There are always dozen of willing suckers to take your bets.)

 

PS.

 

The AEM WEEKLY Chart below does a fine job of pointing out the obvious timing of when to sell covered calls as insurance and when not to.

[Whadda I Do Whadda I Do]

That doesn't count as a gap. It filled to the left already.

[Gold Majestic]

That doesn't count as a gap. It filled to the left already.

634586[/snapback]

 

 

That doesn't count as a gap. It filled to the left already.

 

Amazing. Now I've heard everything.

 

Last time I checked, Whadda, time was still linear in our 3 dimensional, material universe.

 

And charts are still read from left to right.

 

Gaps are created on a chart moving from left to right, from present to future.

 

Gaps can't "already fill" before they've been created.

 

Of course, gaps may or may not get filled depending on subsequent price action.

 

The key word is "subsequent."

 

Tips:

1. Avoid trading common gaps.

2. Only trade gaps when they are confirmed by volume.

 

PS. One purpose of the chart I posted was to point out to bearvest that last week's gap, the one he referred to in a prior post, doesn't necessarily have to fill; just like the late August gap hasn't been filled.

[Whadda I Do Whadda I Do]

A break away gap above the old highs........now that would be a gap.

[hedonicprocto]

Thanks all for a great 2007 and look forward to a better 2008!

Looks like BV was right after all today!

[Charmin]

CDE building cause above 4.60. Maybe more eyes are peeled on this one than I suspect.

 

http://www.StockSharePublishing.com/ChartL..._1199135589.png

[Charmin]

I started a new thread for January 2008, but I'll leave this one pinned and open for a few days.

 

Thanks for all your input and insight. It's great.

[bearvest]

G.M.:

 

It's not my habit to be critical. But you might wish to review my posts.

 

And I'm glad that this thread will be over in a few hours. I never like leaving the potential for sour grapes dangling on the vine.

 

Let me help you lest failed to carefully review my posts to appreciate the transition of one who changes his mind---profitably.

 

For starters--I went very long on August 16th.

 

By late September, I began to take a defensive posture. I didn't know, at the time it was only a wave 3 of 1.

 

Surely, the bearish divergence on MACD suggested that a top was near. It hardly needs repeating---impulses see bearish divergence in MACD or its histogram. ABC corrections do not. I take the time to expain my oscillators--not merely post them. Plese take this as a suggestion for your future posts.

 

After the early November highs, I was decidedly bearish. And I recall saying so. I never posted my trades (as bragging about short profits on this board would not tolerate such heresy). A couple of years ago, I simply stopped posting rather than post bearishly.

 

At post 201, I conceded that my bearish stance required, at least, a recount.

 

At post 207, I posted that GOLD had decisively broken out of a triangle

 

At post 214, I posted that I'd gone long.

 

At post 218, I explained my reversal.

 

At post 219, I conceded that HUI likely reversed trend on an intermediate basis.

 

At post 219, I expressed concern that the first wave up of what I expected to be a HUGE impulse up may be nearing completion

 

At post 223, I lamented that I felt that we were nearing the late stages of that huge first wave

 

By post 243, I felt we were into wave 5 of that first impulse up.

 

At post 255, I said I believed that 5 was in. And I suggested a small 2 of 3 that might take the XAU back to 167-169.

 

Moreover, I said several times that my Fib counts suggested a small top in the miners on last Thursday or Friday of last week.

 

Now, let's take stock.

 

First, the huge time premium on the AEM options has eroded. And I confess that I sold at the low of day on Friday at $3.60---I was the opening trade and low of day.

And it's only 300 shares. Every initial entry is only as pilot position--about 25% of a full position.

 

So I still have the stock, I've captured a bit of the time premium, and we seem to be in wave 4 of "A" of an ABC correction. So far, so good.

 

As far as EGO goes, I'm up.

 

As for GG, I sold an out of the money January 35 for 1.17. I'm up 27 cents on the option and down 17 cents on the stock. Not counting my money yet. Let's see the time premium rot as OPEX approaches.

 

I'm bullish as can be.

 

I'll take full positions later this week or early next.

 

And, I expect that I may be into margin long.

 

Hope this narrative and the chart help.

[Gold Majestic]

G.M.:

 

It's not my habit to be critical. But you might wish to review my posts.

 

And I'm glad that this thread will be over in a few hours. I never like leaving the potential for sour grapes dangling on the vine.

 

Let me help you lest failed to carefully review my posts to appreciate the transition of one who changes his mind---profitably.

 

For starters--I went very long on August 16th.

 

By late September, I began to take a defensive posture. I didn't know, at the time it was only a wave 3 of 1.

 

Surely, the bearish divergence on MACD suggested that a top was near. It hardly needs repeating---impulses see bearish divergence in MACD or its histogram.  ABC corrections do not. I take the time to expain my oscillators--not merely post them. Plese take this as a suggestion for your future posts.

 

After the early November highs, I was decidedly bearish. And I recall saying so. I never posted my trades (as bragging about short profits on this board would not tolerate such heresy). A couple of years ago, I simply stopped posting rather than post bearishly.

 

At post 201, I conceded that my bearish stance required, at least, a recount.

 

At post 207, I posted that GOLD had decisively broken out of a triangle

 

At post 214, I posted that I'd gone long.

 

At post 218, I explained my reversal.

 

At post 219, I conceded that HUI likely reversed trend on an intermediate basis.

 

At post 219, I expressed concern that the first wave up of what I expected to be a HUGE impulse up may be nearing completion

 

At post 223, I lamented that I felt that we were nearing the late stages of that huge first wave

 

By post 243, I felt we were into wave 5 of that first impulse up.

 

At post 255, I said I believed that 5 was in. And I suggested a small 2 of 3 that might take the XAU back to 167-169.

 

Moreover, I said several times that my Fib counts suggested a small top in the miners on last Thursday or Friday of last week.

 

Now, let's take stock.

 

First, the huge time premium on the AEM options has eroded. And I confess that I sold at the low of day on Friday at $3.60---I was the opening trade and low of day.

And it's only 300 shares. Every initial entry is only as pilot position--about 25% of a full position.

 

So I still have the stock, I've captured a bit of the time premium, and we seem to be in wave 4 of "A" of an ABC correction. So far, so good.

 

As far as EGO goes, I'm up.

 

As for GG, I sold an out of the money January 35 for 1.17. I'm up 27 cents on the option and down 17 cents on the stock. Not counting my money yet. Let's see the time premium rot as OPEX approaches.

 

I'm bullish as can be.

 

I'll take full positions later this week or early next.

 

And, I expect that I may be into margin long.

 

Hope this narrative and the chart help.

634678[/snapback]

 

BV,

 

First before I respond, allow me to wish you and everyone a Happy New Year! I?ll respect your wish that this topic remain on the old 2007 thread. And yes, I agree, one mustn't be ?sour grapes? about anything in life, it?s just too short.

 

Bearvest, you have expressed on occasion, you ?disagree with me.? In the past, you?ve been critical of my posts, expressing that you didn?t find them relevant as you had once found them before (or something to that effect). So, you must not take offense if one disagrees with you. And as you must know by now, my perspective on the precious metals market has been ?long-term? in scope as I?ve been careful to make clear over the years since posting here. And my advice has been to accumulate the dips in this secular bull market in gold and to take profits on doubles in an attempt to have a core position of ?free shares.? I?ve explained this several times in the past. So when you make a point to disagree with me when the inevitable accumulation opportunities arise in this long-term bull market, how is one to view your long-term position on the precious metals markets? And yes, I?ve taken the time to read many of your posts. But unfortunately, at times, I?ve found your calls prone to ambivalence: conditional, frequently changing, even sometimes ?bullish, neutral and bearish? all within the same day. I think, fair to say, on occasion, over analyzed, but none-the-less appreciated as expressed many times in the past by me. Appreciated because you do make an effort to articulate your EW analysis.

 

In your last post you wrote, ?I take the time to expain my oscillators--not merely post them. Plese take this as a suggestion for your future posts.?

 

As I recall, the one occasion you asked me to explain what a %B oscillator was on a chart that I had posted, I responded to your request with an articulate explanation. In fact, correct me if I?m wrong, but I believe I?ve contributed a lot of analysis, both technical and more importantly for the long-term, fundamental, to go along with the charts that I post. So I think it?s unfair, innacurate and most unappreciative of you to state otherwise. Perhaps you are the one that has failed to review my posts of the past years, the very lengthy ?rambles? that have discussed my long-term analysis with charts.

 

But putting all of the above issues aside, I clearly stated in my last post:

 

?I understand you're wanting to take out insurance, just don't understand your timing - going long (AEM) the day you think a corrective 2 of 5 is commencing.?

 

I disagreed with your logic of ?going long (AEM stock) the day you thought a corrective 2 of 5 was commencing.? And I disagreed with your logic and timing of selling in-the-money-calls at a probable bottom in AEM.

 

However, your response, very defensive in nature, elaborates on selected posts since the August bottom detailing your calls on the market before finally focusing on the above concern. After the long succession of posts detailing your comments, you respond:

 

?First, the huge time premium on the AEM options has eroded. And I confess that I sold at the low of day on Friday at $3.60---I was the opening trade and low of day.

And it's only 300 shares. Every initial entry is only as pilot position--about 25% of a full position.?

 

But this response doesn?t address the question I had asked of why you would go long AEM stock when you believe ?a corrective 2 of 5 is commencing.? That would be poor logic.

 

And as for EGO (and any other quality gold stocks), although not a subject of my recent post, going long is a bit late (from my August low perspective) but better later than not. (I explained my reasoning on this and by no means was it directed to you.)

 

Bearvest, you wrote, ?And I recall saying so. I never posted my trades (as bragging about short profits on this board would not tolerate such heresy).?

 

As far as recognizing success of one?s efforts, being those of others? or one?s own, it does promote interest in the thread and provides a bit of fun and celebration. It?s all done in fun, especially among a group of anonymous strangers. It?s a fact that several excellent posters have left this site for lack of recognition of their own successful efforts. Sometimes it happens that those who confuse recognition of success with ?bragging? are the ones frustrated with their own lack thereof. So loosen up. And I, for one, would be appreciative of your mention of any of your successes be they long or short. You won't hear any charges of heresy from this goober.

 

I?ll conclude by saying, we?re here to share our experiences and insights, so I hope you don?t harbor ?sour grapes.? Perhaps my post of the simple weekly chart of AEM will encourage others to use such charts as just one of many tools in Options trading.

 

Enough said.

 

Gooberout-to-enjoy-the-New-Year!