Is this a good idea for options??

I don't know....I think it's a pretty good idea.

Right now I trade on 30k commodity account and I want to just add some income as I trade....to help add against the stops

I think this might work. I've looked at all different option strategies and they all seem the same.

I'll give it a shot

 

Yes but it's the same thing....if gold or the dollar go up or down

 

lasner have you graphed the risk profile? Much easier to have a visual.

 

What happens if there some terrorist attack in europe which would cause both the dollar and gold to go up because gold is safe heaven and anything bad for European economy will cause dollar to rise.

just throwing cautionary ideas..

 

safe haven or safe heaven??

 

So it sounds like you don't want to assume a direction. If you are interested in neutral trades, why don't you get some ideas from Mark Wolfinger (iron condors, double diagonals) or someone like that? You will assume less risk than what you are talking about. The problem with way out of the money options is that when the underlying does approach the strike, your loss gets big really fast and there is little you can do about it. There is a lot of leverage in them. You make a little when things go right, lose a lot when they don't.

If you insist on doing this, at least go a few months out--don't use near month options.

 

Yeah i was planning on going a couple of months out. I thought more about it and I will take a direction.

I'm actually bullish gold.....I know what you mean those out of the money options can catch up.

I may write a june 1625 call in gold and also write a june 890 put in gold.

Then write a june 90 call in the dollar. That way I'm bullish. There is different things I may do as well maybe look at different months....or even different markets. I know food and the dollar are inversely related.

Like I said it's just an idea....a different way of trying something

 

First of all. The two are not completely 100% negatively correlated. There a million reasons why they could both go up or down together.

I believe they both went up in 2005. I didn't take the time to look it up other than glance at a couple charts.

 

If you are truly bullish on gold, then go long the ETF or gold futures. Now, to hedge, go long the dollar (short the euro) using the ETF or currency futures. Set it up as a neutral position or set it up so that you are rewarded for a bigger gold move upward than a dollar move downward. According to your rationale, gold's increase will outpace the dollar's decrease. If you are wrong, then you will be hedged and lose less. You can also set this up as an option spread as well. You can use the futures (if they are available to you) or the ETF's.

 

just wondering if you guys had any other ideas that would make this trade work....maybe writing options in different months or at different strikes....