Archive

Posts Tagged ‘trade’

Apple Inc. (AAPL) & eBay Inc. (EBAY): How To Trade Options Around Company Earnings

January 22nd, 2013

buy sell holdJ.W. Jones: The hallmark of a professional option trader is the ability to use a wide variety of trade structures in order to exploit opportunities to profit from specific situations the market presents. One of the opportunities routinely presented multiple times yearly is the impending release of earnings. Read more…

Earnings, Education, Investing Guide, Technology

Barack Obama And Mitt Romney Both Favor A One World Economic System That Kills American Jobs

October 21st, 2012

Either way this election turns out, American jobs are going to continue to get slaughtered by the millions.  During this campaign, Mitt Romney and Barack Obama have both attempted to portray Read more…

Economy, Government, World News

SmartStops.net Teams With TradeKing to Facilitate Risk Management

July 11th, 2012

San Francisco, California, July 11, 2012– SmartStops.net, an online service that helps investors of all levels manage investment risk, announced today that the SmartStops BrokerLink service is now available for clients of online broker Read more…

ETF, Mutual Fund, OPTIONS, Uncategorized

Join Corey Thursday for Live Webcast from Dallas on Execution Tactics

June 13th, 2011

If you’re unable to make it down to Dallas, TX for this week’s Traders Expo, don’t fret!

The Expo is hosting live webinar events throughout the Expo, and I’m pleased to announce I will be presenting on “Trade Execution Tactics” during a live webinar session this Thursday, June 16th at 4:30 CST.

Visit the following link or click the image to learn more and register for the free event this Thursday afternoon.

It’s definitely fun to talk about trade set-ups, but what really matters is your execution tactics and skills – the ability to enter a trade set-up you recognize in real time instead of just letting it pass you by, frustrated that you missed another opportunity.

I’ll discuss how important it is to maximize your trade entries and exits and answer these following common trader questions:

“Ok – I see a set-up in real time, but how do I actually enter it?  Market?  Limit?  Bracket?”

“I waited patiently for my entry but the market just started moving so quickly. Is it too late to enter?  Am I chasing?”

“How can I feel comfortable entering a trade in real time without hesitation or doubt?”

You’ll be able to join-in live as if you were in the audience for the live presentation and will be able to ask questions and participate during the session.

From the description:

Join Corey Rosenbloom, CMT as he explains various trade set-ups such as retracements or breakouts with a focus on exactly how to enter a position in real time in a market in motion.

Learn the difference between conservative or aggressive entry tactics, recognize the trade-off between them, and then identify which strategy works best for you, depending on your unique personality and experience.

These insights into trade execution tactics, and the effect on the all-important reward to risk relationship, are applicable to all markets and timeframes.

  • Learn how to differentiate between conservative and aggressive trade execution tactics
  • Recognize the inherent trade-offs between an aggressive early entry into a trade set-up and a later entry with additional confirmation but a reduction in trade edge
  • Develop confidence in your skills of putting on and taking off trades when you see a set-up and price moving in your direction… but you’re unsure where exactly to enter

Thank you to the MoneyShow and TradersExpo staff for these webinar opportunities – there will be more throughout the conference for you to attend – and I hope to see you there at the webinar!

Corey Rosenbloom, CMT

Read more here:
Join Corey Thursday for Live Webcast from Dallas on Execution Tactics

Uncategorized

This Trade Could Break out for a 44% Gain

June 13th, 2011

This Trade Could Break out for a 44% Gain

This stock's story started in 1972 with a nagging stomachache.

To ward off chronic discomfort, a Utah school teacher put a spoonful of cayenne pepper into an easy-to-swallow gelatin capsule. He felt immediate relief, but perhaps more importantly realized his remedy also had business potential. Shortly after, Nature's Sunshine (Nasdaq: NATR) was born.

The first company to encapsulate herbs and sell them as natural remedies, Nature's Sunshine nutritional, herbal, weight management and personal care products are now sold in more than 40 countries worldwide through a network of more than 600,000 independent distributors.

The company appears poised to grow further. According to the National Center for Health Statistics (NCHS), dietary supplement use has widely increased in the past two decades. Between 1988 and 1994, 42% of all Americans used supplements. In 2003 to 2006 this increased to 53%. A recent survey by Wakefield Research found that more that 60% of adults in the United States currently take vitamins or supplements.

Not surprisingly, in 2010, the vitamins and minerals market was valued at $24 billion, worldwide. By 2015, the market is expected to be worth nearly $30 billion. And with baby boomers aging, this number is only expected to keep rising.

From the viewpoint of technical analysis, it hasn't always been sunshine and rainbows for this health-oriented company.

In 2006, when Nature's Sunshine went public, shares quickly ran up from around $8 to $12. By July 2007, they climbed to a peak of $14.45. But they were caught in the downdraft of a plummeting market and plummeted to a low of $3 by June 2009.

Shares have crept back up over time, however, slowly rising from around $5 to $9 to $14 by mid-2010.

Unable to break the $14.75 mark in May 2010, the stock pulled back to near the $8 level in June 2010 and consolidated there for nearly a year, until May 2011.

The stock is now just emerging from what looks to be a multi-month basing pattern. This basing pattern appears as a long “U,” marked by support near $8 and resistance on either side of the pattern, at about $14.75.

Shares have hit an all-time high of $14.95 after bullishly breaking $14.75 resistance during the June 6 trading week. With no historical resistance in sight, the stock could move much higher.

According to the measuring principle for a basing pattern, calculated by adding the height of the pattern to the breakout level, the stock could reach a price target of around $21.50 ($14.75 – $8 = $6.75; $6.75 + $14.75 = $21.50). At current levels, this price target represents a 44% gain.

The herbal-wellness company also looks fundamentally strong.

In early May, the company reported solid first-quarter results. Due to growth in existing markets and expansion into emerging markets, revenue for the period increased 7% to $92.8 million, from $86.8 million in the year-ago period.

For the full 2011 year, analysts project revenue will increase about 4.8% to $366.7 million, from $349.9 million last year. By 2012, analysts project international growth will drive revenue up a further 5%.

The earnings outlook is equally strong.

Due to decreased general administrative and operating costs, first-quarter earnings rose 38.7% to $0.43 per share, from $0.31 in the year-ago quarter. For full-year 2011, analysts expect earnings to more than double to $1.15, from $0.54 the prior year. By 2012, earnings are projected to increase an additional 4.4%, to $1.20.

The stock is also attractively valued, based on its forward price-to-earnings (P/E) ratio of 12.5 and its price-to-sales (P/S) ratio of 0.7. In comparison, competing nutritional products company Herbalife (NYSE: HLF) has a forward P/E of about 15.5 and a P/S ratio more than double Nature's Sunshine's, at around 2.2.

Furthermore, Nature's Sunshine has a strong balance sheet, with $61.2 million in cash and no long-term debt. This liquidity gives the company the financial wherewithal to continue developing its product line.

Action to take –> Having just bullishly broken out of a basing pattern, I believe the stock presents a limited-time trading opportunity, with the potential to make as much as 44% for traders.

Uncategorized

This Comeback Stock is up 2,228% — and Counting…

June 6th, 2011

This Comeback Stock is up 2,228% -- and Counting...

This stock is a survivor. In fact, one can argue that in 2007 to 2008, it suffered a near-death experience.

As the overall market fell precipitously, Crocs (Nasdaq: CROX) absolutely plummeted. From a peak of $75.21 in October 2007, it fell well more than 99% to a low of $0.79 in November 2008. If you bought the shares on the day of their exact low, however, you'd currently be ahead 2,228%! That makes 10-baggers seem piddling.

And the good news is that technical and fundamental analysis show the stock has significant potential upside from here. The stock is on a tear, currently trading very near its two-year high of $22.75.

However, if the stock breaks a small shelf of resistance near $23, then the window of opportunity to profit from the trade could close quickly.

Driving Croc's growth is aggressive product diversification. Like a crocodile itself, Crocs is strong and resilient. Although the company still specializes in comfortable, colorful clogs, it has reshaped its image and brand — – and continues to.

Originally developed to appeal to the U.S. yachting market, today Crocs offers 250 shoe styles for every season and many target markets. Crocs latest product is a kid's shoe, called the Chameleon, which changes color after being hit with ultraviolet light from the sun. The company now also sells winter boots and even offers a heeled shoe, an attempt to appeal to the comfort-seeking business woman.

Crocs footwear products and accessories are currently sold in 90 countries worldwide. The company has built a multi-pronged distribution channel of international retailers, web stores, outlets and kiosks.

Although opinions about the look of the shoe may be polarized — some see Crocs as a fashion disaster, others as comfortable and quirky — there's no debating that, technically, the stock is in a Major uptrend and appears to be on its way higher.

Uncategorized

This Comeback Stock is up 2,228% — and Counting…

June 6th, 2011

This Comeback Stock is up 2,228% -- and Counting...

This stock is a survivor. In fact, one can argue that in 2007 to 2008, it suffered a near-death experience.

As the overall market fell precipitously, Crocs (Nasdaq: CROX) absolutely plummeted. From a peak of $75.21 in October 2007, it fell well more than 99% to a low of $0.79 in November 2008. If you bought the shares on the day of their exact low, however, you'd currently be ahead 2,228%! That makes 10-baggers seem piddling.

And the good news is that technical and fundamental analysis show the stock has significant potential upside from here. The stock is on a tear, currently trading very near its two-year high of $22.75.

However, if the stock breaks a small shelf of resistance near $23, then the window of opportunity to profit from the trade could close quickly.

Driving Croc's growth is aggressive product diversification. Like a crocodile itself, Crocs is strong and resilient. Although the company still specializes in comfortable, colorful clogs, it has reshaped its image and brand — – and continues to.

Originally developed to appeal to the U.S. yachting market, today Crocs offers 250 shoe styles for every season and many target markets. Crocs latest product is a kid's shoe, called the Chameleon, which changes color after being hit with ultraviolet light from the sun. The company now also sells winter boots and even offers a heeled shoe, an attempt to appeal to the comfort-seeking business woman.

Crocs footwear products and accessories are currently sold in 90 countries worldwide. The company has built a multi-pronged distribution channel of international retailers, web stores, outlets and kiosks.

Although opinions about the look of the shoe may be polarized — some see Crocs as a fashion disaster, others as comfortable and quirky — there's no debating that, technically, the stock is in a Major uptrend and appears to be on its way higher.

Uncategorized

Where will Silver, Oil and the SP500 Bottom?

May 9th, 2011

The price action in precious metals and oil this past week has been breathtaking. The last time we have seen this much volatility in commodity prices was amidst the financial crisis in 2008 and the early part of 2009. Does this mean we are at the brink and risk assets are going to decline precipitously? Obviously that question cannot be answered with any certainty, but the underlying price action in the S&P 500 has been relatively strong compared to gold, silver, and oil.

Talking heads everywhere are predicting the commodity bubble has burst and pointing fingers at excessive speculation in silver and oil. Margin requirement changes in silver futures have been fingered as the primary catalyst for the nasty sell off. Silver had gotten way ahead of itself in terms of price and parabolic moves higher are usually followed by parabolic moves lower. For silver buyers on Friday, April 29 a painful lesson has been learned as their investment has declined more than 30% in 5 days.

It doesn’t take a genius to realize that we are going to bounce higher at some point. With a sell off of this magnitude it would not be shocking to see at least a 50% retracement of the entire move in coming weeks. It is also possible that this is a buying opportunity for precious metals and oil. It is too early to be certain, but a bounce next week is likely as silver went from being severely overbought to severely oversold on the daily chart in one week. The chart below illustrates the 50% retracement and the RSI reading for silver futures:

In the month of April OptionsTradingSignals members were able to capitalize on rising silver prices to close a trade that produced an 18% return in less than 5 days using a double calendar spread in order to produce outsized profits based on maximum risk. Members regularly receive trade alerts focusing on gold and silver using ETF’s GLD & SLV which have extremely liquid options.

While silver prices have been absolutely crushed, gold prices have held up a bit better. In fact, in this selloff gold has been less volatile in terms of intraday percentage price movement and has not suffered from near the losses that we have witnessed in silver. The gold futures chart below illustrates key price levels:

Members of the OTS service received a trade alert on April 6th for a calendar spread that was converted to a vertical spread. When the vertical spread was closed on April 26th the members realized a gain close to 56% based on the maximum risk of the trade.

Recently we have received some poor economic data which has put a drag on equities the past few weeks. This morning we are seeing a strong bounce in the S&P 500 futures and if we have another light volume Friday prices tend to drift higher throughout the trading day. The S&P 500 futures spiked to around 1,370 on the news of Osama Bin Laden’s death and then sold off from that point. The chart below illustrates the S&P 500 futures rally and subsequent sell off highlighting current key price levels:

Members of OptionsTradingSignals received a trade alert on April 12th to put on a call vertical spread to capitalize on rising prices. On April 21st partial profits were taken and eventually stop orders closed out the position on May 4th locking in a total gain of around 32% for the trade based on maximum risk.

Oil prices have sold off sharply, albeit not as sharp as the downside move in silver recently from a percentage standpoint, but a significant amount of the risk premium has come out of oil prices. I continue to believe that oil prices over the long term have only one direction to go based on tightening supply / demand going forward and lower production levels in the future. Similar to silver, a .500 retracement of the entire recent move is rather likely in coming weeks. The daily chart below illustrates key price levels in oil futures:

I continue to believe that oil prices are going to work higher over the longer term for a variety of reasons, but a drop in gasoline prices would not hurt U.S. Consumers and the domestic economy. Higher oil and gasoline prices weigh on the U.S. Economy heavily so this sudden decline in price is beneficial to most Americans which could juice consumption if prices stay lower for a longer period of time.

Overall, price action in the commodity space has been extremely volatile the past week with silver and oil really getting hammered lower. Gold and the S&P 500 held up a bit better and it would not be shocking to see the S&P 500 put on a rally from here if oil prices stabilize. However, if the U.S. Dollar continues its recent rally it will force the commodity space as well as equities lower. The daily chart of the U.S. Dollar Index futures is shown below:

In closing, I am expecting a bounce in coming days and a .382 or .500 retracement of the entire move in gold, silver, and oil would make sense so I would not be too aggressive shorting. However, I would not necessarily be an aggressive buyer either. It is going to take time for market participants to digest the recent moves. In weeks ahead it will be more apparent what price action is likely to do and I would be shocked if we did not see a few low risk, high probability trades setting up.

Speaking of low risk, high probability trades, the month of April was the best performance for the OptionsTradingSignals service so far year to date. Seven total trades were opened and six trades have been closed with sizable profits. Recent returns included an 18% return in SLV, a 56% return on a GLD trade, 32% return on an SPY call vertical spread, a 12% return on a RUT Calendar spread, and a 37% return on an AMZN calendar spread. The total cumulative return in April was 155%.

Assuming a trader had a $10,000 account and risked a maximum of $1,000 per trade, the gross gains would have been well over $1,400 in April alone. The overall service is up over 15% year to date handily beating the S&P 500 return while assuming less risk. Take advantage of the special offer going on now where new members get 3 months for the price of one!

Get JW Jones’ Weekly Reports Free Here: http://www.optionstradingsignals.com/profitable-options-solutions.php

By: JW Jones
Co-Author: Chris Vermeulen

Read more here:
Where will Silver, Oil and the SP500 Bottom?




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF, OPTIONS

Take Advantage Of Dips In Precious Metals and Miners

May 6th, 2011

Federal Reserve Chairman Ben Bernanke will continue devaluing the dollar (UUP) by keeping interest rates at all-time lows and continue quantitative easing as we have not seen a major improvement in unemployment and housing. We are also entering an election year in which central banks do not want to rile the equity markets. Just because the S&P (SPY) has been soaring does not mean the economy is improving. Easy money policies will continue for an extended period of time to fight against current economic weakness. This is an environment in which gold (UGL) and silver (AGQ) will benefit. We are currently seeing a massive inflationary environment globally that has caused political unrest in North Africa and the Middle East, and rising costs in key emerging economies such as China and South Korea.

We must be prepared for these current short-term corrections in precious metals because it will provide additional buying opportunities in gold (GLD), silver (SLV) bullion and mining stocks (GDX). The market will try to make you be complacent when you should be fearful, and make you scared when you should be enthusiastic.

I have mentioned that silver was 70% above the 200-day moving average, surpassing overhead resistance, reaching record levels on the oscillators and surpassing my late January technical targets. Silver has moved much faster and higher than I originally projected. I initially thought the move would last through May, but the speculative buying and short covering has caused silver to reach my target a few weeks ahead of schedule. Whenever these conditions occur, caution is merited as the odds of a shakeout have significantly increased. A healthy correction is necessary to maintain the long-term steady uptrend and provide secondary buypoints.

Major institutions raises cash and began selling into a rising market as the speculative fever reached a climax the last two weeks of April. When the consensus gets greedy, I get fearful. Since late January when my indicators turned bullish on precious metals and mining stocks, we have seen record investment demand in silver and gold bullion combined with short covering. Tremendous record volume in the silver market indicated a short-term buying hysteria. These frenzies in the precious metals markets are often followed by quick and violent corrections which we are currently witnessing to shakeout the Johnny Come Lately traders who get overaggressive in these rising markets. Investors were building up very aggressive and speculative positions. The conditions in silver have been setting up for a painful pullback.

A healthy correction is currently necessary to sustain the long-term steady uptrend in hard assets. Most investors do not realize that precious metals are in a long-term secular uptrend but there will be volatility with ebbs and flows. Silver is an extremely turbulent market which exceeds technical targets and momentum oscillators regularly. Silver blows very hot and very cold exceeding to the upside and the downside.

This is a chart I sent my readers April 22, 2011.

I needed to be careful about this move in silver in late April surpassing my late January target of $40 and the US dollar bearish sentiment which was reaching an extreme in late April. Silver exceeded upper trend channels and saw record volume, showing signs of a shakeout. I was very concerned that silver was overheating as the herd tried to force its way into this trade.

Whenever I have seen these parabolic moves, they have not ended well as the profit-taking begins and the investors who have overleveraged themselves get margin calls. I am not surprised at all about this painful shakeout.

Precious metals investors may be repositioning from bullion into mining stocks. This consolidation may be the catalyst to help the miners catch up with the performance of gold and silver bullion. Mining stocks have not yet seen the speculative levels that bullion has seen. The general public is now realizing that inflation and precious metal prices will be high for some time to come as Bernanke has no plans of exiting, but are reluctant to enter bullion at these pricey levels. Miners, especially junior explorers (GDXJ) are providing a discount to bullion. Inflation will continue for years to come yet this correction in the junior miners (GDXJ) indicates the public is still unaware of the basic fundamental and growth potential of this sector over then next decade especially when gold and silver find support.

This has been no surprise to my readers. I have said that there is no exit plan from the Fed. There is a concerted effort to devalue the US currency to pay back soaring debts. The US is broke and it can’t afford raising interest rates. Savers are getting swindled by leaders in Washington, which has used public taxpayer money to bail out corporations and banks. Americans are getting squeezed by soaring prices of basic goods, while their hard-earned savings are depreciating.

I have urged caution around initiating positions in gold or silver bullion as the trade was very crowded and at the end stages of its short-term move from late January through May. Remember, gold has a historic cycle to provide a sale every six months.

As gold and silver sell off, don’t forget the long-term uptrend will stay intact. Will you be ready for the next turning point in precious metals as the herd sells out during the panic?

I believe junior mining stocks (GDXJ) will catch up. Some people are concerned that some of the mining stocks that haven’t moved yet should be sold while they’re reaching long-term support and basing. I don’t believe so as they all provide leverage to falling currencies and rising demand from emerging economies. As these mining stocks sell off, I begin to look at the long-term fundamentals which have not changed. Perceptions from the herd change but the fundamentals in gold miners (GDX) do not. One must take advantage of sell-offs in gold and silver miners; they are opportunities to get on board the secular bull market in precious metals. I believe it is the best way to protect one’s assets during these times of growing record deficits and currency devaluations.

Read more here:
Take Advantage Of Dips In Precious Metals and Miners

Commodities

Join Corey Tuesday Afternoon for Live Webinar on Enhancing Your Trade Execution Tactics

May 2nd, 2011

I’m excited to announce that I will be presenting a free, live Webinar sponsored by TradeStation as part of their “Live on the Web” educational series that is open to all traders, and I wanted to invite you to attend.

The webinar is entitled:

“Trade Execution: Aggressive vs Conservative Tactics and the Risk-Reward Relationship”

Here’s the official description from the TradeStation Registration and Information page:

May 3, 2011:  4:30 EST / 3:30 CST (after market close)

Duration 60 minutes

Join Corey Rosenbloom, CMT as he explains various trade set-ups such as retracements and breakouts, with a focus on exactly how to enter a position in real time in a market in motion.

In this session you will learn:
- how to differentiate between conservative and aggressive trade execution tactics
- the inherent trade-offs between conservative and aggressive trade entry
- trade-entry risk-reward relationships that are applicable to all markets and time frames.

The real money in trading is made by putting on and taking off trades appropriately, and that is a skill we all must develop as traders.

I’ll be explaining exactly what to do once you spot a trading opportunity but aren’t sure how to enter the trade.

I’ll also explain that once a ‘clean’ entry has triggered and you missed it, you still have other opportunities to enter the trade – just because you miss the perfect entry doesn’t mean you missed the whole trade.

We’ll take a look at leading stocks such as Apple and even touch on our old friend Silver – SLV – and how to enter safely into breakout moves from powerful uptrends that many traders find so difficult.

Thank you to all the staff at TradeStation for hosting the webinar series and I look forward to seeing you there!

Corey Rosenbloom, CMT

Read more here:
Join Corey Tuesday Afternoon for Live Webinar on Enhancing Your Trade Execution Tactics

Uncategorized

Handwerger Interviewed In MarketWatch Article

April 29th, 2011

Silver mania may come to an abrupt end
Commentary: Higher prices still on tap, but $50 screams caution

By Myra P. Saefong, MarketWatch

The following is an excerpt.  Click here to read the complete story.

Just how impressive silver’s climb is compared to gold’s. Year to date, silver futures are up 54% while gold futures have gained under 8%.

“Silver has rallied, moving exponentially, while gold is still moving linear,” said Jeb Handwerger, editor of GoldStockTrades.com, in recent newsletters. “I am very concerned that silver may be overheating as the herd tries to force their way into this trade.”

Read more here:
Handwerger Interviewed In MarketWatch Article

Commodities

Handwerger Interviewed In MarketWatch Article

April 29th, 2011

Silver mania may come to an abrupt end
Commentary: Higher prices still on tap, but $50 screams caution

By Myra P. Saefong, MarketWatch

The following is an excerpt.  Click here to read the complete story.

Just how impressive silver’s climb is compared to gold’s. Year to date, silver futures are up 54% while gold futures have gained under 8%.

“Silver has rallied, moving exponentially, while gold is still moving linear,” said Jeb Handwerger, editor of GoldStockTrades.com, in recent newsletters. “I am very concerned that silver may be overheating as the herd tries to force their way into this trade.”

Read more here:
Handwerger Interviewed In MarketWatch Article

Commodities

How I Hedged Summer Gas Prices with ETFs

April 20th, 2011

gas-pump

With oil prices hovering over $100 per barrel again and the summer driving season approaching, Americans are rightfully fretting over what they’re going to be paying at the pump as tensions continue to flare in the Middle East and the nuclear accident continues to unfold in Japan.  Gas prices tend to rise annually during the summer driving season anyway, so it shouldn’t come as a surprise if prices continue to rise from the current levels of close to $4 in many states.

There are various ways to hedge your own energy costs which I penned a while back, but since I just did a transaction last week, I thought I’d share the actual details.  Of the various ways to hedge energy costs, I chose to focus directly on gasoline prices since there isn’t always a direct correlation to oil prices given the refining situation in the US.  Maybe it’s just me, but it always seems like gas prices are quick to rise when oil rises, but slow to fall when oil declines.  Additionally, if refining capacity were to become constrained again, gas prices could remain high while oil prices dropped.

Therefore, I used the best proxy for gas prices out there, the gas price ETF with ticker symbol UGA.  While one approach would be to buy shares of UGA, I chose to sell a put option.

Transaction:

  • I sold 2 UGA Jul 16 2011 50.0 Put Options for 1.90 each
  • UGA was trading at around $53 per share at the time of the trade and 52.45 as of Tuesday’s close
  • Income = $380 net of commissions

Outcomes

I know, this isn’t a big trade, this is more of a personal finance balancing act.  Our family only consumes a few hundred dollars in gas a month, so if gas prices spike, the $380 will help blunt the increase.  Should they decline, then I’m paying less out of pocket even though I may lose money on the trade.  In order to lose money on the trade actually, at expiry in July, UGA would have to be trading at (50-1.9 = 48.1) $48.1 per share or less.  So, if UGA closes at $49, which would mean gas prices declined almost 10% from today’s price, you’d get to keep the full premium.

This method is essentially what businesses and municipalities do on a larger scale though.  If you’re running a business that relies heavily on gas prices, you may want to hedge in this fashion (airlines do).  If your input costs are heavily dependent upon any other raw material, if you can hedge it, you may want to do so to smooth out operational risks.  There are numerous commodity ETFs to choose from to see where else you can hedge costs that impact you – food, coffee, oil, you name it!

Do You Hedge Anything?

ETF, OPTIONS

Incredible Silver Pairs Trade – If You Can Find the Shares to Short

March 24th, 2011

There’s a really nice silver pairs trade being set up right now for investors that are agile enough, already set up for margin/short trading and understand the premise behind this pairs trade.  Using the exact same concept I outlined previously for a gold pairs trade which worked out beautifully, there’s a nice market inefficiency (see more on arbitrage investments) to exploit in the difference between two silver instruments at the moment.

In short, we’d be going long and short an equivalent amount of money on two different funds simultaneously to capture the spread when we see a reversion to the mean in premium.  I’ll explain more.  But first, the ETF and the CEF (more on closed end funds):

  • iShares Silver Trust (SLV) – This is the ETF that we will use as the proxy for the silver bullion price.  SLV is the most commonly traded silver ETF and tracks the spot price of silver in real time relatively well.  The strategy would entail taking a long position in SLV.
  • Sprott Physical Silver Trust (PSLV) – This Sprott closed end fund has the added feature of allowing the investors to that actually allows for physical delivery of gold bars to investors in the trust on demand.  While this entails considerable cost, hassle and security considerations, the mere notion that you can take custody of the silver that you believe you hold in shares of the trust provides a comfort to investors that the other ETFs and ETNs can’t.  Therefore, investors are willing to pay a premium to the underlying net asset value of the fund (this is a common feature of CEFs; ETFs don’t trade at premiums/discounts).  Contrary to the long position in SLV, the strategy would entail taking an equal short position in PSLV.

Strategy Outcomes

As of Thursday’s trading session, PSLV was trading at a hefty 24% premium.  You can see real-time premiums on Sprott’s website.  Take a look at where 24% lands – it’s OFF THE CHART!

(click to enlarge)

What’s telling is that this premium is not only WAY outside the historical norm, but what generally happens barring some sort of massive secular change in sentiment, is a reversion to the mean.  So, one would reasonably expect that the premium will return to something along the lines of say, 15%.  On a pairs trade, you could capture the 9% difference regardless of which way silver actually trades since you hold an equal dollar amount in both SLV and PSLV.  You’re simply looking to profit on the decrease in premium and you don’t care at all about the actual direction or magnitude of the change in silver moving forward.  When I employed this strategy for the gold pairs trade I alluded to earlier, it was complete within days for a nice gain of a few hundred bucks with minimal risk to me.

Personally, I attempted to enter into this pairs trade today, but alas, Ameritrade did not have the shares available to short at this time.  I’ve tried to short various instruments over the years and sometimes the shares are available while sometimes they’re not.  You may have better luck on a different day or with a different investment firm.

Your Downside Risk Profile

Of course, there’s no free ride.  If for whatever reason the premium expands further, then the trade would move into the red.  Of course, you only have a gain or loss when you close your trade, some short positions are known to be called in from time to time if the shares are no longer available to borrow.  I’ve had that happen on occasion when shorting leveraged ETFs.  While it would defy logic to see a continual or permanent 30%+ premium, stranger things have happened.  I’d probably view the brokerage call-back of shares at the wrong time as the more likely scenario than a complete lack of reversion to the mean.

Disclosure: No position in either instrument highlighted in this article.

Source article ETFBase.com: Lucrative Silver Pairs Trade – If You Can Find the Shares to Short

ETF

Incredible Silver Pairs Trade – If You Can Find the Shares to Short

March 24th, 2011

There’s a really nice silver pairs trade being set up right now for investors that are agile enough, already set up for margin/short trading and understand the premise behind this pairs trade.  Using the exact same concept I outlined previously for a gold pairs trade which worked out beautifully, there’s a nice market inefficiency (see more on arbitrage investments) to exploit in the difference between two silver instruments at the moment.

In short, we’d be going long and short an equivalent amount of money on two different funds simultaneously to capture the spread when we see a reversion to the mean in premium.  I’ll explain more.  But first, the ETF and the CEF (more on closed end funds):

  • iShares Silver Trust (SLV) – This is the ETF that we will use as the proxy for the silver bullion price.  SLV is the most commonly traded silver ETF and tracks the spot price of silver in real time relatively well.  The strategy would entail taking a long position in SLV.
  • Sprott Physical Silver Trust (PSLV) – This Sprott closed end fund has the added feature of allowing the investors to that actually allows for physical delivery of gold bars to investors in the trust on demand.  While this entails considerable cost, hassle and security considerations, the mere notion that you can take custody of the silver that you believe you hold in shares of the trust provides a comfort to investors that the other ETFs and ETNs can’t.  Therefore, investors are willing to pay a premium to the underlying net asset value of the fund (this is a common feature of CEFs; ETFs don’t trade at premiums/discounts).  Contrary to the long position in SLV, the strategy would entail taking an equal short position in PSLV.

Strategy Outcomes

As of Thursday’s trading session, PSLV was trading at a hefty 24% premium.  You can see real-time premiums on Sprott’s website.  Take a look at where 24% lands – it’s OFF THE CHART!

(click to enlarge)

What’s telling is that this premium is not only WAY outside the historical norm, but what generally happens barring some sort of massive secular change in sentiment, is a reversion to the mean.  So, one would reasonably expect that the premium will return to something along the lines of say, 15%.  On a pairs trade, you could capture the 9% difference regardless of which way silver actually trades since you hold an equal dollar amount in both SLV and PSLV.  You’re simply looking to profit on the decrease in premium and you don’t care at all about the actual direction or magnitude of the change in silver moving forward.  When I employed this strategy for the gold pairs trade I alluded to earlier, it was complete within days for a nice gain of a few hundred bucks with minimal risk to me.

Personally, I attempted to enter into this pairs trade today, but alas, Ameritrade did not have the shares available to short at this time.  I’ve tried to short various instruments over the years and sometimes the shares are available while sometimes they’re not.  You may have better luck on a different day or with a different investment firm.

Your Downside Risk Profile

Of course, there’s no free ride.  If for whatever reason the premium expands further, then the trade would move into the red.  Of course, you only have a gain or loss when you close your trade, some short positions are known to be called in from time to time if the shares are no longer available to borrow.  I’ve had that happen on occasion when shorting leveraged ETFs.  While it would defy logic to see a continual or permanent 30%+ premium, stranger things have happened.  I’d probably view the brokerage call-back of shares at the wrong time as the more likely scenario than a complete lack of reversion to the mean.

Disclosure: No position in either instrument highlighted in this article.

Source article ETFBase.com: Lucrative Silver Pairs Trade – If You Can Find the Shares to Short

ETF

Copyright 2009-2013 MarketDailyNews.COM

LOG