We have two trades with open gains and two with an open loss. Fortunately, the gains outweigh the losses. And I expect more upside ahead for each.
Three of the four trades expire in January, so we have some time with those. However, one of the positions that is down expires at the end of next week. So I want to talk about that one first today … and why it makes sense to sit tight in each for now.
Our SPDR Gold Shares (GLD) December $120 Put options show an open loss of about 40%. But it’s not because I was wrong about gold …
The loss is due to a historically boring November. One in which the price of gold did little.
In fact, not since 2005 has gold traded in such a narrow monthly range.
If you understand time decay, boring is not a good thing when you own put or call options.
Now, as we make our way into December, the move I expected to unfold is finally starting.
Time is not on our side with these GLD puts. But I do suspect gold will continue moving lower through next week.
If I am right, much of the lost value will come back into your options. So I recommend holding on to them, and waiting for my signal to exit. Here’s more about why …
Gold Movers on the Horizon
There are a few items to mention about next two weeks: the Federal Reserve meeting, E-Wave Cycle Chart bottom and my technical target.
Part of my expectation for gold prices going into year-end was predicated on interest-rate expectations and the timing of what is expected to be the Federal Reserve’s next rate hike on Dec. 13.
In December 2015 and 2016, the Fed hiked interest rates. Each of those events turned out to be bullish for gold in the weeks and months that followed. This time could prove similar, even though the anticipation of a rate hike is likely to keep pressure on gold until then.
Then there is the Edelson Wave Cycle chart for gold to consider — it forecasts a bottom in mid-December.
I like that because the timing fits nicely with the Fed meeting.
It also fits with my technical target. I see gold pushing down toward $1,226 per ounce before it’s time to consider betting on gold to go higher.
The more-aggressive traders among us might consider adding bearish exposure to gold for the move I think we’re going to see in the next two weeks or so.
Others might stay put and wait for instructions on when to switch directions and how. If the market moves according to plans, I suspect those instructions will be coming your way before December is over.
Crude Oil
After a test of the highs, crude oil seems poised for the drop I’m anticipating with our trade in ProShares Ultra Bloomberg Crude Oil ETF (UCO) January $20 Put options.
I think $50 per barrel is a good general target until additional price action better defines targets for us.
Sit tight with your UCO puts and your GLD puts. Hang on to your U.S. Gasoline Fund (UGA) January $31 Puts and your Alcoa (AA) January $48 Puts, too.
I promise I’ll grab those Alcoa gains — currently at 86.4% — soon. I just see price action that seems to foreshadow the coming of another quick drop in Alcoa’s share price. Let’s be there to catch it.
Stay tuned.
Do right,
JR