This Gold Sell-off is a Buying Opportunity
Gold has been selling off heavily the past couple of weeks. But given the tremendous run-up the stocks had had in the last few months, this is not a surprise to most traders. The stocks are now at a great buy point, my proxy for the sector, ASA (will cover the newly launched Gold Miners ETF in another post) is trading around 60. This is about 20% off from the recent high, which is a good entry point for a volatile index like Gold. The stocks could come in more, in which case one could deploy more cash to buy more.
The stocks from now on can do one of two things- go right back up and continue their bull trajectory; or consolidate for a few years at these levels. It is good to be planning for the latter; covered call selling is a great way to play this. Options on all Gold stocks have juicy premiums, and once can get mid double digit yearly returns by selling long term at the money calls. Of course, if the stocks come back up and keep rallying-you leave profits on the table if you sold calls on your stocks; but a prudent trader is happy with yearly returns close to 15% on options selling. There will be more sell-offs, more markets to trade, and more trading opportunities.
Sanjay John G.
The stocks from now on can do one of two things- go right back up and continue their bull trajectory; or consolidate for a few years at these levels. It is good to be planning for the latter; covered call selling is a great way to play this. Options on all Gold stocks have juicy premiums, and once can get mid double digit yearly returns by selling long term at the money calls. Of course, if the stocks come back up and keep rallying-you leave profits on the table if you sold calls on your stocks; but a prudent trader is happy with yearly returns close to 15% on options selling. There will be more sell-offs, more markets to trade, and more trading opportunities.
Sanjay John G.
2 Comments:
still needs to be very careful about the commodity and energy stocks. Although bubble has popped somewhat, you have to realize that commodity price and energy price has run up by hedgies who have speculated on the increasing demand of metals and oils due to emerging economies. Fed will continue to curb the growth as the higher energy price finally start affecting the inflation rate from this point on. Higher demand of oil and commodity will also be tempered by the slower growth of US and emerging economies. With recent runup, I will be very careful on these stocks,
Demand in the US is not responding to higher prices (not going down). This will hold for some time, until it does go down. The problem for the commodity shorts is that any decrease in the price of Oil or Gold is taken as a dip by buyers on the sidelines, and will be scooped up quickly.
Going long at these levels has good risk/reward.
Sanjay John G.
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