Let me get some feedback on this gold trade

Discussion in 'Professional Trading' started by commoditiestrdr, Feb 11, 2008.

  1. commoditiestrdr

    commoditiestrdr Commodities View

    Inflation! Inflation! Inflation! What does it mean for Oil and precious metals? Higher prices of course. While Oil is on it’s way to $100 a barrel and gold is on it’s way to $950 we should see some corrections.

    I feel that Gold will skyrocket due to the fact that the Fed wants to lower rates and not take on inflation. However there will be corrections within gold and oil. I follow Elliott wave to do my trading and feel now is a great opportunity to short Gold. I’ll show you an example of how you can short gold and also protect yourself from market swings, which is so important with how this market is moving.

    Let’s take a look at the Gold chart below

    We have a nice impulse wave that has formed. I would like to short the Gold market in June at $915 The current price is $930. I would like to place my stop at $930. I’m also going to buy a call option at 930 in June for $4980. This is a delta neutral option meaning it will cover half of any loss and cut into half of any profit.

    Now when we sell we don’t sell at the market we sell slightly below the market. Remember you always want the market to come to you. We’ve basically straddled the market. If it doesn’t sell off and continues to rally we will make money on the option. If it does sell off we will lose money on the option and profit on the futures contract. Since we are in a delta neutral option we will lose half of our profit. If the market sells off strongly exit the option and continue down with the futures contract.

    I hope this helps! Happy Trading.
  2. Instead of shorting the futures AND buying a call-option, why not just buy the put-option instead by itself?
  3. commoditiestrdr

    commoditiestrdr Commodities View

    It's a depreciating investment. I just use the call to hedge with. You would have to buy two put options to have the same effect.