options trading strategies

[hugh_lawson]

I have decided to enter the options market by going long on gold mining stocks. It is something I have not done in twenty years, and that last foray was really expensive due to twenty-something hubris. I want to be a bit more methodical about it now.

This post is to generate some discussion on options trading strategies for the semi-newbie. Here are some questions I'd like to get answered:

1. Can someone recommend a technical analysis website that specializes in gold stock speculation timing, strategy, and education? The one I am familiar with is Doug Casey's. I also have subscribed to the Aden Analysis in the past. Could I get some opinions on the value of their services?
2. What strategies are being used by iTulip members to go long on gold stocks, or any stocks for that matter? I'd like to know the details of what the more experienced traders here are doing.
3. Would someone who has used spreads and straddles give me a run down on how and when these might be beneficial?
4. Some discussion on expiration dates, strike prices, and the timing of cashing out of a call (or put) for maximum profit would be great.
5. Can someone recommend some reading material?
6. Is one trading house better than others for options? The current plan is just to use Schwabb since I have an IRA account there already.

The bulk of my money will remain in a diversified 401K with about 10% being used for the speculation account.

That should do for now.

[raja]

5. Can someone recommend some reading material?

I was thinking of doing what your are proposing, but ultimately decided against it. It seemed like a lot of work to learn how to do it effectively, so I decided to do other forms of speculating . . . .

However, in the process of checking it out, I found articles, tutorials, FAQs, and webinars at the Chicago and Philly exchanges. Perhaps they would be helpful to you?

http://www.phlx.com/educat/index.html
http://www.cme.com/edu/

[Lukester]

Jim Sinclair (www.jsmineset.com (http://www.jsmineset.com)) is one of the more senior commentators on the gold and precious metals markets, and is considered really quite knowledgeable on the sector. You must know of him.

He reiterates time and again to avoid any and all leveraged plays on precious metals, as they are markets already prone to move violently of themselves. He suggests leverage of any kind on them is a treacherous approach therefore, even for small amounts of venture money.

He has for several years now been suggesting instead you can make a very good and actually quite predictable return over the next five years from holding a significant position in the bullion itself, but this implies some wide reading and subsequent acceptance of the logical underpinnings for that being a bull market out to 2010 - 2015.

Interestingly, if you doubt his thesis in that regard, it's probably even less a good idea to speculate in gold stock options then.

[Tulpen]

There is an ETF, with options available, specifically on gold mining stocks that trades on the AMEX, symbol:GDX, issued by Van Eck Global (http://www.vaneck.com/index.cfm?cat=3192&tkr=GDX&LN=3).

He has for several years now been suggesting instead you can make a very good and actually quite predictable return over the next five years from holding a significant position in the bullion itself, but this implies some wide reading and subsequent acceptance of the logical underpinnings for that being a bull market out to 2010 - 2015.

An alternative is not to actually buy the gold, but instead to buy a gold ETF, for instance IAU. They are marginable and shortable as well.

[Lukester]

Tulpen -

It is the use of margin of any kind which Sinclair repeatedly advises his readers to avoid. iTulip's thesis is that gold goes up "when central banks permit it to go up". There is almost certainly some truth in that. That may be changing however, if not now at some point soon. Changed or not, central bank manipulations have been able to take leveraged players, and hang them out to dry.

Sprott Asset management refer to central bank manipulation as weakening, and others do too, however you are still playing games with some other players who have vastly deeper pockets than you.

There are many deep pocketed, seasoned players in the gold markets who can and regularly do take speculators of all stripes to the cleaners. Small specs are their favorite meal. If you employ margin you step out into the clear and become one of their targets. Sinclair says they'll eat you for dinner.

If you employ no margin, ultimately it is you who will eat them for dinner.

That's the thesis anyway. Sinclair's been around the block a few times.

[Tulpen]

Since the topic poster is clearly interested in leveraged trading I simply provided information on GDX.

If he wants to speculate with options then I do not think we are going to stop him by warning him of the risks involved.

For what it is worth, I do not invest in gold on margin.

[Lukester]

Sorry Tulpen - my reply should have indeed been addressed to Hugh Lawson.