I wanted to get some feedback from others regarding a semi-abstract scenario. Before jumping into the reaction pool of "gold will go this way, this is right, this is wrong", please take the time to read this post in full. The primary goal is to see how people would invest $2k to $4k if they were confident that gold would experience a 35% increase in price over the next 18 months. The exact timing is unknown, but it would be within that timeframe. The objective is to take advantage of such a scenario while still controlling risk. With that being set, let's set some parameters for answers so the conversion is more fruitful: Objective: - If you were confident that gold would experience a 35% increase within the next 18 months, how would you invest $2k - $4k? Why this approach? How does this approach address risk/reward balance? Major thing to avoid: - Discussing if gold will actually go up or not. This is an exploration of strategy to take advantage of a long bias - not an exploration of the validity of the long bias itself. I understand that this might seem out of the norm for some to detach, but let's please try to keep this in mind. - Certain answers may seem absurd to others, but being open to the possibility of absurd dialect is more fruitful to innovation then being closed off to it; from absurdity often stems valuable information. With that being said, let's be respectful of the differing opinions.
GLD: simple 35% gain and keep most of capital intact GLD options: can be good risk/reward, but you lose it all if you pick wrong strike price gold futures: get more leverage, but doesn't improve risk/reward and subject to possible margin calls. gold mining stks: can get leverage on gold price increase, but exposes you to operational issues that are very company specific; dependent on investor enthusiasm with "paper gold." SLV: more beta, expect silver up 50 to 70% to gold's 35%. Maybe better risk/reward than simple GLD.
What is this 35% you guys are talking about and how can I trade this factor profitably. Any suggestions will be appreciated.
35% or higher. However, this is not necessarily me taking the bet. I'm operating in hypothetical circumstances right now, and how others would react in these circumstances. Would opinions change if I said 20% instead?
On a touch or at the end of 18 months. The answer will change for 20percent. Probably best is to buy an out of the money call where the expected return is maximized. This is an easy calculation to make.