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Re: Options Question and Education
I hope it was obvious I was using large round numbers and full size contracts for purposes of illustration. E-minis are obviously much more accessible. I think they should be plenty liquid if using them for precious metals and stock indexes.
For much smaller accounts, I think standard short selling is more appropriate than options for calls like "time to short the S and P"....
For Comex gold the contract size is 100 ounces, not 1000. If I ever said 1000 ounces that was a typo. One contract at today's price for gold controls approx. $141,000 worth of gold, not $1.4 M. And at one third the size, the gold e-mini controls about $47,000 worth of gold.
For Comex silver the standard contract size is 5000 ounces, and the e-mini size is 1000 ounces.
For the S and P index, it is $250 times the index value for a standard contract, as I stated in my example. The e- mini has a multiplier of $50, so the position size would be about $80,000 at today's prices. That's indeed a lot of money, but I would guess many itulipers have enough assets that hedging or shorting the whole market with a chunk that size would be appropriate and useful.
Standard contract size for Henry Hub natural gas is 10,000 MBTU which is $40,000 at today's prices. The gas e-mini is 2500 MBTU or about $10,000. Buy the contract 6 to 12 months out and roll forward every 3 months for a simple long NG strategy that avoids severe losses due to front month contango (when it's there). I view this as the best PCO play in terms of risk/ reward right now. Quality coal stocks are a close second at recent prices, esp. BTU which has been beaten down by China fears but which has very sound long term prospects.
Avoid gas etfs if possible esp. ones that robotically roll the front month contracts. There will be infrastructure plays with PCO but you need to find one that offers the intermediate term upside (2-3 years) of gas doing nothing but mean reverting to its normal ratio relative to oil. I am sure they exist but I have not done the work to find them, and there are no management issues with the commodity itself.
Oil does not even need to rise for gas to do very well.
Originally posted by astonas
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Thanks again, rogermexico, for your detailed help. I can see several places where I was simply misunderstanding things, including some pretty basic ones. You've cleared them up pretty well, though. 
(You also mention in your primer that 1 contract represents an obligation to provide 1000 oz. gold at a given price.)
I'd remembered that you had mentioned a mini-contract in one of your earlier posts, and went hunting around for more info. I thought I'd provide the information here for the benefit of others who might have a similar not-quite-yet-a-millionaire problem. ;-)
There are 44 different E-mini futures contracts, which are designed to have much smaller multipliers, for smaller traders. In the case of both the S&P and gold, the multiplier is 50, instead of the standard 1000.
So, an e-mini contract would allow an investor to speculate on 50 oz. of gold, with an initial margin of $3,376, and a maintenance margin of $2,500. I have no idea about whether these are still a good deal (if the trading friction and contract costs scale well) though I suspect rogermexico could rattle that off.
I'd suspect there's not many choices for those who don't have an account worth even the ~$71k associated with 50 oz. of gold, but it is nice to know you don't have to work in increments of ~$1.4M+. Even if one did have that much free, one might in cases prefer a more incremental speculation strategy.
(You also mention in your primer that 1 contract represents an obligation to provide 1000 oz. gold at a given price.)
I'd remembered that you had mentioned a mini-contract in one of your earlier posts, and went hunting around for more info. I thought I'd provide the information here for the benefit of others who might have a similar not-quite-yet-a-millionaire problem. ;-)
There are 44 different E-mini futures contracts, which are designed to have much smaller multipliers, for smaller traders. In the case of both the S&P and gold, the multiplier is 50, instead of the standard 1000.
So, an e-mini contract would allow an investor to speculate on 50 oz. of gold, with an initial margin of $3,376, and a maintenance margin of $2,500. I have no idea about whether these are still a good deal (if the trading friction and contract costs scale well) though I suspect rogermexico could rattle that off.
I'd suspect there's not many choices for those who don't have an account worth even the ~$71k associated with 50 oz. of gold, but it is nice to know you don't have to work in increments of ~$1.4M+. Even if one did have that much free, one might in cases prefer a more incremental speculation strategy.
For much smaller accounts, I think standard short selling is more appropriate than options for calls like "time to short the S and P"....
For Comex gold the contract size is 100 ounces, not 1000. If I ever said 1000 ounces that was a typo. One contract at today's price for gold controls approx. $141,000 worth of gold, not $1.4 M. And at one third the size, the gold e-mini controls about $47,000 worth of gold.
For Comex silver the standard contract size is 5000 ounces, and the e-mini size is 1000 ounces.
For the S and P index, it is $250 times the index value for a standard contract, as I stated in my example. The e- mini has a multiplier of $50, so the position size would be about $80,000 at today's prices. That's indeed a lot of money, but I would guess many itulipers have enough assets that hedging or shorting the whole market with a chunk that size would be appropriate and useful.
Standard contract size for Henry Hub natural gas is 10,000 MBTU which is $40,000 at today's prices. The gas e-mini is 2500 MBTU or about $10,000. Buy the contract 6 to 12 months out and roll forward every 3 months for a simple long NG strategy that avoids severe losses due to front month contango (when it's there). I view this as the best PCO play in terms of risk/ reward right now. Quality coal stocks are a close second at recent prices, esp. BTU which has been beaten down by China fears but which has very sound long term prospects.
Avoid gas etfs if possible esp. ones that robotically roll the front month contracts. There will be infrastructure plays with PCO but you need to find one that offers the intermediate term upside (2-3 years) of gas doing nothing but mean reverting to its normal ratio relative to oil. I am sure they exist but I have not done the work to find them, and there are no management issues with the commodity itself.
Oil does not even need to rise for gas to do very well.
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