Presented by Greg Jensen
Greg: About a third of you room have owned and traded options but never traded gold. Few of you have owned traded gold but never traded options before.
Some of you have done neither of that. What I will tell those of you who have never traded options before, I’m going to talk about specifically a couple of
option strategies today. If you feel yourself falling behind and not understanding, feel free to ask questions and I’ll try to clarify as much as possible.
I’m not going to cover some extremely difficult concepts in options but just some brief ones but I do want to throw that out there. I’m going to be talking
about specifically some option strategies surrounding the gold market as well. Let me again introduce myself. My name is Greg Jensen. Like I said, I’m the
CEO and founder of OptionsANIMAL. I recognize several names in the list of attendees who are here who are already students of OptionsANIMAL.
You already know who OptionsANIMAL is. For those of you who don’t know what OptionsANIMAL is, we’re an education company. I started trading almost 20 years
ago now. My introduction to the options world or the investing world started in the equities; excuse me, started in the commodities market. It wasn’t gold.
It was actually in wheat, sugar futures, and corn futures as I watched my father hedge risk in the different crops that we were growing.
I went to school, got my degree in Finance, fell in love with stock market, the equity side of the world in school and then I started trading for a living.
I saw this huge demand for the baby boomer generation particularly. I think it’s going forward. The baby boomers are just the ones who are the first
adopters of this. That is self management of your money. Nobody cares more than you do. However, with any type of expertise or any type of profession,
maybe not even profession, but any time you’re dealing with money requires some level of education.
I had people approach me and saying, “You’re trading for a living, you’re doing really well. Can you teach me how to do it?” OptionsANIMAL was created with
the intent of teaching the individual investor like you and I to trade successfully in the markets. What I’m going to do for those of you who are already
students of OptionsANIMAL, hopefully you’ll appreciate this. Those of you who are not students OptionsANIMAL as well I’m not going to go through a sales
presentation here and tell you about all the bells and whistles of OptionsANIMAL, and try to sell you on who we are.
I’m going to educate, I’m going to teach you about how to use option strategies specifically in the gold market right now. I know there will be some
questions and interest in who OptionsANIMAL is. I will save that for the end of the presentation for those of you who want stick around afterwards and ask
some questions. The last few slides I’ll probably talk a little bit about who we are. The other thing I will throw out right now. I know we had a technical
glitch last week.
We may end up with another one today. There is a massive thunderstorm outside my office right now. If I lose power, if all over sudden I just disappear,
probably my internet went out; my power went out in the building. Hopefully that does not happen. If it does we’ll maybe end up rescheduling this gold one
again. Maybe I need to keep talking more and more about gold. Let’s go on. Those are all those pretty pictures of me that you really don’t care about
What you want to talk about is, why do investors own gold? There’s three main reasons that I feel investors own gold. Number one is speculation. Number two
is a hedge against potential inflation. The other one is demand max beyond thunderdome syndrome. What is speculation? It’s the idea that I’m going to go
buy some gold and because whether it’s demand, whether it’s the drop of the value of the dollar, whatever it might be, that gold goes up in value and I end
up making money.
That’s one of the reasons and probably the most commonly used. The other one that’s used often is a hedge against inflation. What this means is the idea
that because of the devaluing dollar, because that’s what gold is priced in. It’s in dollars. There is a risk that other costs whether it be fuel, whether
it be bread, whether it be clothing, services, those costs all go up based on activities with Central Banks and creating essentially a worthless currency,
the US dollar of course that is. That’s what gold is priced in.
This is the one that’s probably talked about the most from the investor’s standpoint because there’s a big fight here. Of course as we all know watching
the economy over the last couple of years about this idea of inflation and there’s devaluing dollar and [webanky 00:05:21] & company are doing with the
dollar versus deflation and the economic risks that are going on right now. Unfortunately, for those individuals who have purchased gold for a hedge
against inflation at least for the last couple of years it hasn’t worked out so well.
That doesn’t mean speculation for the three years prior to that didn’t cause a massive run up in gold … We’ll bring up some, let me just do that right now.
Bring up a chart of gold and we can look at obviously the longer term picture. Obviously we have this huge run up in gold in 2009, 2010, 2011, we picked
out over $1,800 an ounce. The sell off that has occurred again on the backs of the idea that the inflation that everyone was fearful of in ’09, ’10 and ’11
really didn’t materialize.
In fact that story quite honestly it’s changed. I don’t know if it’s going to come back any time soon from the inflationary standpoint. It doesn’t mean
that gold is a dead investment. I think there is opportunity here. You just have to look at it from a different perspective. The last I would say reason
why investors own gold is that mad max beyond thunderdome syndrome. For those of you who are like, “What is Mad max beyond thunderdome?” It’s a corky ‘80s
movie. It’s Mel Gibson, Tina Turner, end of the world queasy apocalypse type of movie where we all drive around a big [inaudible 00:07:25] jeeps and one
Folks, if that happens, if we’re in that type of scenario, gold is simply just a shiny metal and it’s not going to matter. If that’s why you’re buying
gold, you’d be better off to buy food because you can actually eat food. I don’t think we’re going to get there. I’m not one of those apocalyptic guys that
thinks that the world is about to end. Each their own. I’m not going to tell you that I am 100% right in where things are going.
If that’s what you’re thinking the only thing I’ll tell you about gold is it’s probably not a good investment either right now if that’s truly your
thoughts. For me, obviously my finally my animation came through. Did you guys see that animation? I always have wondered. I know it works in a live
presentation. I always wondered over the webinar if that little blowing up the … Good. You guys saw the animation there. Not that it’s that cool.
Let’s talk about ways to own and trade gold. There are several different ways and several of them have different benefits to them. One of them is tangible,
physical gold. Gold that you’re holding in your hands. There are couple of ways to do this. Number one is gold bars. This is usually typical for most
individual investors. This is how often times banks and central governments own their gold is in physical tangible gold.
You may remember a story I once said, it’s about a year ago now, where Germany requested all of their gold back. I was actually unaware of the situation
that we were actually holding a bunch of Germany’s gold. Apparently post World War II the Germans of course being very close to at the time Soviet Russia,
there was a little fear that Eastern Germany and the communist side of Europe was going to potentially take over the rest of Europe. They wanted to protect
much of their gold and they actually sent and shipped a lot of their gold over the United States.
Just within the last year or so they requested that physical gold back. They want it back in the country, in Germany. That’s mostly done with governments
and banks and central banks. The way for most of us if we want to have tangible gold is really in the form of coins. There are a lot of different coins out
there some of them differing qualities. The most common investment grade coins as listed here, the American eagle, the South African Kruger rand, Canadian
Maple leaf from the Australian [inaudible 00:10:12].
Again there are a couple of others as well, Chinese panda and a couple of other ones that are generally accepted as well. Again the point with these is
this is tangible gold that you want to have in your possession as part of your portfolio.
For me I have some of these. This is part of my diversification and kind of a hedge for my whole portfolio or my net worth you could say. Sometimes you
have to ask someone what’s a percentage of that? How much should I own in tangible gold versus how much should I own in stocks or how much in bonds and so
on. Personal question for you to determine. Again it can depend on your own risk preferences. I will say there is some potential risk with that because I
can’t protect the value of those coins that are sitting in my safe at home.
I can shares of ETF I’m going to talk about in a minute. Another way to trade is the gold futures market. This where a lot of the people who use gold
speculating hedge. I will say one thing about futures market. Number one they’ve raised capital requirements, ownership brokerage I want to say is $8,800
per contract that you trade that you’ve got to have a margin requirement to be able to trade in the futures market. There’s a lot of risk in the futures
market and this is a fast way to trade in. if you want to make your biggest bang for your buck or your first bang for your buck the futures market is
probably the place you want to play.
It’s also the highest risk in my opinion because it have some big fluctuations. I really don’t trade there. I prefer if I’m going to trade gold to do it
through the ETF, the exchange trading fund, GLD. There are some other ones out there. The reason why I prefer this one is because of the liquidity. Not
just in the ETF itself but in the options inside of the ETF which is more important as you’ll see when I get to some of the specific strategies that I like
to trade gold with. The down side of an ETF is again the idea that I don’t physically own the gold.
The upside of the ETF is I can use options to control my risk wit that ETF that I own. I’ll show you some of those strategies here and just specifically
one strategy that I like to use here in just a minute and how I’m going to use options to hedge that risk. Just take in that time. There are some other
pros and cons as well again from the ease of selling it. A gold coin where I typically have to take that to a dealer or a coin shop or a bank and then I
just have to wait in line again make this the physical trip.
Sometimes I don’t always get off a stop price they’ll maybe want to charge me a bit more. Sell me a little bit of [eag 00:13:22] in their business. They’re
trying to make money usually so they’ll try to take some here or there. The upside, the gold ETF is I can do it online. I can do it from my brokerage firm.
Down side is every time I execute transaction I pay a commission to my brokerage firm as well. Each one of them has pros and cons.
I think it’s important for you to make a determination which one of those do I like. Again for me how I traded, there are two different sides of my gold.
One of them is a set percentage for me to get about 5% of my portfolio that I own intangible gold coins. The other side of it is the ETF GLD which I treat
just like any other stock I might trade. When I see opportunity, when I see the ETF sitting at multiyear laws I think to myself this is a good time to jump
in and buy the stock.
Similar to how I may jump in and buy Apple because I consider this to be a multi ear laws. I might jump in to do the same thing but I’m going to treat it
as a trade then not a part of my portfolio. A part of my investment strategy. Two different things. There’s a way to protect these gold coins. I’ll get to
that here in just a minute at least somewhat of a way. I have to be willing to be a little bit diversified but I’ll talk about that here in just a minute.
Let me talk about the strategy particularly that I use to trade the ETF GOB and that is the color trade. The color trade to me is combined of three
components. One long ETF, for those who don’t know what ETF stands for I apologize if I’ve used that term, exchange traded fund is what ETF stands for.
Simply a group of money that people have pulled together they’ve created a mutual fund that is traded on an exchange just like stock is.
Those advantages that gives me is number one being able to invest in gold with a very minimal amount of money if I want to and be able to trade options
surrounding the protect because you can see those in the next two components. The next one is a short call position. Typically this instrument is used in
the expectation is stagnant or slightly bearish. When I combine those together often times referred to as a covered all.
The next component is a long put. This is an insurance tool allows you to protect the value of my ETF here. When I combine all three of these together it
creates a collar trade which ultimately takes advantage of a longer term trend. In the short term both the long put short call hedge my risk. I go on
structure one this types of trades I’m going to go out and I’m going to place my long put either at the money or near money with a minimum of 45 days’ time
value. I might go a little bit further out in some cases if I feel need for longer term protection, if there’s downward movement that I’m expecting.
However the reason why very rarely go beyond 60 days is because if I truly think I need longer term protection. Again I’m not going to go and buy puts with
a year out in time. If I really think I need to be protected for a year, on this thing that’s probably not a good investment. That means I’m probably
buying something on down trend and probably need to just wait it out a little bit. Wait for a bottom before I consider and jump in the trade. From a
practical stand point I know a lot of people who like to say go and buy the longer term protective puts in your call trade and you have risk for a longer
From a reality stand point A when you actually execute a trade what you’ll find is that if you’re buying long term protective puts you probably shouldn’t
have been buying this stock yet in this case the ETF for me typically 45 to 60 days. The short call is an instrument that’s used to help pay for the
protective put. Typically in the way I trade caller trades is I’m going to sell that call option. One or two strikes out of the money which usually works
anywhere from three to 12 months with time value.
There are two rules for me with the covered call here. I want to pay for protective put again pay for my insurance as well as it needs to be the strike
price that’s high enough that if gold bounces back up. My short call happens to get assigned it will at least be a price that I am profitable. Another one
it’s just got to be strike price it’s higher than the course basis of my ETF. One thing that’s really important, whenever you’re building your strategy on
a caller trade is determining what trend you are in. to do this, this is where a lot … I’m going to call it guess work comes in.
I know a lot of people don’t like me using the term guess work. Everyone wants to say I’ve got a full proof trading plan that can pick tops and pick
bottoms and tell you exactly where to get in and exactly where to get out. Folks that doesn’t exist, trust me I’ve looked. I’ve tried a lot of them. I’ve
read through a lot of them. I’ve used a lot of software I’ve tried them all. It doesn’t exist. I believe that if it did exist MIT would have a patent on
it. It would just be a money machine. The problem with any idea that says I’m going to pick exact tops and bottoms.
The problem with anything that tries to analyze that is at the end of the day what we are trading in as market. What is a market? A market is people. It’s
a combination of people. People have a tendency if you haven’t noticed throughout your life, I know I’ve noticed. People have the tendency to be irrational
at times when they shouldn’t be. They have a tendency to ignore fear when they should be thinking about it and because of that you’re going to have moves
up and down that can’t be explained sometimes.
They go against all of the technical analysis tools, the Fibonacci retracement levels, the Elliot wave theory. All the red arrows and green arrows you look
at it’s never going to be 100% accurate. After saying that, it’s still important for you in your trade here on gold to still say or anything for that
matter. This rule doesn’t apply to just gold, this applies to anything you trade in. To make your trading plan based on some expectations of where the ETF
might be headed.
You can make your contingency adjustment plans if it breaks down but at least you have to go into this with the idea of saying I am going to do a trade
based on X, whatever X might be. If X doesn’t happen then I will adjust my trade accordingly. Does that make sense? Let me walk you through an example here
with gold and how I might look at this. There are a couple of things here on this chart that should have an investor concern.
Number one is the potential set up of the death cross on gold. It’s not happening yet however, the 20 day moving average which is this dark blue line is
breaking at 200 right now. Gold broke the 200 back here, back on April 19th. That to me was the big breaking of the back for gold that said
we’re going to go significantly lower. Even though it bounced higher for a few days and tried to get back up above it, it failed trying to get back up
Ultimately it’s now floundering trying to find support. The 20 day moving average crossing the 200 is not a good sign. It’s not the “death cross.” The
death cross is when the 50 day crosses the 200 day. Typically by then folks, most of the bearish move has already occurred. I think if you’re waiting for
the death cross to happen on gold, you will miss hundreds of dollars of move. On the case of the ETF, $20 to $30 of move. Typically what I like to do is
say, you can already see my lines I drew in here.
Let me delete them. I drew these last week and haven’t changed them yet. Let’s delete them all so we can go back through and do that analysis. One thing I
will say is over the last week or so because this is a one week chart. Let me take you to a daily chart. I‘m going to have to zoom in just a little bit. To
do that I’m going to go out to a two year chart. No, still a weekly. You’ve got to go to a one year chart to get a daily otherwise you’ll have so much data
Notice the choppy trading right here around $120. I think it’s trying to hold $120. GLD is … We push back below it on Friday but then bounce back up today
or at least pretty close to it today, 19.51. That’s pretty tap and support. It’s a one or two, three, four, five days and that was mostly last week during
a very light trading week with the 4th of July. I don’t know if I’m 100% buying in at 120 it’s holding. It’s trying right now.
The reason why that’s significant is as I go to a longer term chart that $120 level actually is a significant level. The significance comes back here to
2009 and 2010. Why is that significant? It’s a former level of resistance. What I have found is that former levels of resistance will often times act as
levels of support coming back down. Is this going to act as support? Now it’s trying to. I think $120 is pretty significant.
We didn’t hold it but we bounced within I would say striking distance to say that’s it is pretty close to it. However, if this breaks the next level will
probably be this level of resistance and maybe just a little higher than that. The reason why I say a little higher than that is $100 is actually a nice
sentimental number as well. $1,000 per ounce on the price of gold, I think if we get back down there, especially if we break into triple digits that
there’s a chance that you’re going to get some buying step in.
Let me paint another scenario. Things get really bad. We can very easily go back to the lows of 2008 with the momentum we’ve got going. No, it’s not going
to go there overnight. It’s not going to go there in two weeks. Could it get there in a month? Maybe. How quickly has it taken to get from $1,600 down to
where it’s at right now at about $1,200? We were at $1,600 an ounce pretty close to it February. We’re at $1,550-ish in April. Just a couple of months ago.
Within about 60 days we’ve dropped over $300 in gold.
Is it theoretically possible that we could drop another $400 of gold in the next 60 to 90 days? Sure it is. Those are the types of contingencies that I’m
talking about that you have to start to plan for. I’m not saying that that’s what my expectation is but as I sit and look at a chart, I have to plan and
say, what are my potential levels that I think gold could go to? When gold breaks one of those levels, that might initiate some type of an adjustment or
some type of change in strategy.
What about the upside? Let’s assume gold is put in a bottom here and that we do start to see some inflationary pressures. We do start to see a movement
worldwide to go back to the gold standard. Maybe we see some pressure again moving away from the dollar as the world reserve currency, again I don’t think
that’s going to happen any time soon but you never know. Things move pretty fast. 1,400 or 140 is I think a pretty realistic jump. In fact 160 wouldn’t be
As I go in and structure trade I have to take those numbers into consideration because it’s going to number one, help me determine my strike prices that I
choose potentially. More realistically is to what my targets are when I get a potential move one way or the other. Let me show you how my structure caller
trade now surrounding this. Rather than go back to my PowerPoint I’m going to stay here inside of an options chain and then bring in an Excel spreadsheet
as well. We need to open up my Excel spreadsheet.
We’ll go to color trade. Structuring the trade on gold. First thing is, I got to buy my puts. First thing as I buy the ETF. We’ll just use market price.
We’ll buy it at $119.51. The next thing is choosing my protective put. August is really too short a time frame for me right now. It’s only 40 days. Can you
give me enough cushion? September is perfect, 75 days. What I do is I typically buy my protective put along with my ETF usually right at the money or
slightly out of the money.
In this case I’m going to buy the $119 for $4.90. Let me go back here. Change a few things out here. We’ll drop this down to a 100 shares to get it a
little bit more reasonable. $119.51 is where the ETF is currently trading. We’re looking September put. I know the 15th is not expiration I’m
just using that as a nice round number. We want to say 490. Is that correct? I can maybe work that spread, right? Bid 475, ask 490 in fact I should be able
to get that for 485. That’s a wide enough spread right there 15 cents spread and a liquid enough option.
Again I’ve got 2,000 contracts I’ve opened interest here. as you can see 120 have almost 15,000 contracts of open interest. Plenty of that open interest
here and let’s have a huge, unless I’m talking about putting on a four 500 contract trade here. if I’m looking to a five lottery, 10 lottery, 20 lot I
shouldn’t impact the price. Let’s work that spread. Let’s purchase that put for $4.85. Okay. Now the covered call, remember my rule so I want to bring
enough premium to pay for the cost of $4.85 and then I’ll also sell it as strike prices. It’s high enough but if I get a sign I’m going to make a profit.
I could almost do that here with the 120’s but that’s just basically a breakeven. Typically what I’ll do is I’ll go a few months out. In this case I’m
going to clear out to let’s just use December. I’m going to sell the 124’s for 5.05. Again here’s another spread I can work. I could probably get 5.10.
Open interest 6,000 contracts have open interest so we’ll the sell the December and close with January so they don’t make as much mess here. Alright 5.05
I’m going to sell the GP of December at 124s for 5.05. 12, 15 of 13 sell the December 124 for 5.05.
Real quick math, all the spreadsheet does is calculate net debit for me and then potential risk and reward down there. Let me explain what it does. By
selling this call for $5.05 and spending $4.85 on this one I’m essentially decreasing my debit on my total ETF purchase by 20 cents. I put the easy math
right here. $119.51 plus$ 4.85 minus $5.05 give me a total cost of $119.31. The cash flow scenarios down here on the bottom are calculated assuming a
couple of different things.
Number one assuming that the worst case cash flow scenario that I actually exercised my protective put. What does that mean to those of you who are new to
options? What that protective put gives me the right to do is sell my ETF or sell these shares of gold at $119 share. With a cost of $119.31 I have a
little bit of risk here. I’ve got $31 of risk plus my commissions I’ve got a little bit of commission cost on top of that. I can do this in an IRA or no
margin type of account right here. I can also use margin which is simply borrowing money to do it.
I’m okay doing that in a form of caller trade because I don’t have to worry about a margin call in the case if gold permits. Does gold go down to $600 an
ounce and my ETF drops from $120 down to $60 and I have no value anymore because I borrowed half of it from the broker. The reason why that will never
happen with my caller trade you’ll see the examples you go through here in a minute. It’s my put will offset that value in the bearish drop.
I’m actually okay. Now there’s still some risk associated in doing a caller trade with margin. That risk is really just tied to whatever interest rate
you’re paying. Your margin of course can be anywhere from 4% to 6%. Still relatively low right now although margin interest rates have been going up as
interest rates have been going up lately as well in general. Now the best case cash flow scenario is calculated assuming that the ETF gets taken away from
me and gold moves back up, moves back up to 130, 140. I get it taken away from me at 124 which is $469 a profit or about a 4% return of investment or a
little over 6% in an IRA.
Is a 4% return a good return in five months? It’s not very good is it? That’s why I said 1% a month. Just barely less than 1% a month. What is that
annualized? Let’s see. $3.93 divided by five times 12. About 10% return annual. Some of you might say, “10% annualized returns hallelujah sign me up.” Some
of you might be it’s not type of trade for me. Let me put this into perspective here, number one for some of you a 10% annual return with virtually no risk
while you’re doing it is the holy [graole 00:36:56] to you. I know that’s going to be the case. Some of you it’s not going to be what you need.
You can change the trade around a little bit based on your own preferences to either increase return. I will say this however every time you increase the
best case scenario on a trade like this you’re also going to increase the worst case scenario. Let me give you an example. Let’s say that you went back to
your options, to your trade here and you said, “I think gold has the ability to really run so I’m not going to sell this in December I’m going sell in
January. I’m going to sell a lot further out of money.”
Let’s go see, let’s do a 28 strikes gets. I’m going to sell the 145 here for $1.10 and see what that does. Notice much bigger potential return. Some of you
might look at that and say that’s a lot of more like a five month return I’m talking about. 18% return in five months. I can live with that your down side
is still limited. You still want to get a 3.5% return so again still might look at that and say yeah I like that trade.” You also have to take into
consideration the probability of that actually happening. Let’s go back to my chart.
What’s the probability of gold going back to 145? It could happen, right? That’s a bullish scenario so that could happen if it bounces here. If that’s the
case you might structure your trade a little bit like that. How about the probability of it going back to 124 versus 145? You see where I’m at here. The
probability of that going back to 124 is actually very high. There’s a very good chance it goes back there whereas 145 it may or may not happen. Build that
into your expectations when you’re looking at the trade. I’m on the areas of the side of caution here. I’m going to sell the December and I’m still going
to sell relatively close to the money.
I’m going to sell the 124 for $5.10. The next question and Ian, you’re asking a good question here. What happens if gold doesn’t move? What happens if I
get through September and all over sudden my put is gone? Then what? I’ll get to that question here in just a minute. I’ll tell you in short answer to that
question right now, although I’m structuring the options with different months to begin with I will very rarely ever be in a situation unless it’s a bully
situation where I find myself with only one of the two options open.
Otherwise I usually close both options and repositioning. Just because I opened them with a time differential doesn’t mean I’ll ever be in a situation
where I may be somewhere between September and December left hanging out to dry without protection. I can always buy that covered call back at any time
when it’s out there in December. I don’t have to wait until December to close that trade out. I can close it next week if I want. If we get the bounce in
gold next week back to $140, I’m out.
I think the best way to illustrate this is talk about the two extremes of what could happen. That’s what I look for when I trade this type of color trade.
I’m looking for volatility. I’m looking for big movements one way or the other. Let’s talk about those two potentials. Let’s assume that gold … We’ll talk
about bullies first. Let’s assume the gold bounces from $120 up to, let’s say we get a 200 bounce in gold in the next 60 days. I’ve got this put in place.
We bounce back up to $1,400 an ounce. I know there’s some analyst out there calling for that right now. We’re going to see a potential rebound up to $1,400
and then a potential pull back down maybe even to the $800 range a year from now. Let’s say we get this bounce in the next 60 days up to $140 on GLD. What
are my options worth? There are tools that are available. I’m going to take the time to show you how it works real quickly.
We’re going to look here, my September puts, then we have the $119, it’s analyze tab here. I’m just showing you one of Trade Monster’s trading tools.
Spectral analysis, what this allows you to do is make some assumptions. We’re going to assume that 60 days, I will say we get through … Let’s not take it
all the way to those days. Let’s say by the end of August. That’s not quite 60 days. We’ll say by August 31st that gold moves to $140 an ounce.
What is my put worth? As you can see here, not much. In fact, nothing according to this, zero dollars and zero cents.
Maybe if, as you can see as I scroll down it gets higher and higher in value depending on where the stocks … I clear it up at $140, this thing is
worthless. Which is what I would probably have expected at a move to $140. It’s still going to cost us a nickel sell it. We let it expire. Let’s say it’s
worthless. I just lost more than 85 bucks. How about the call option? What’s it worth? Can I do the same thing? We’ll make some assumptions in here. This
one I’ve gotten December and we’re doing $124. Analyze, we were saying by August 31st. We were saying $140.
$17.60 roughly. That’s showing the $12,000 gain. I was assuming 10 contracts here but I’ve actually shot at that call. If it’s worth $17.60, I sold it for
$5.10. For me to go and buy it back, I’m actually at $12.50 loss, 1,250 bucks. I’m up roughly $2,000. Not quite. I’m up a little over $2,000, $2,049. In
this case let’s do the math. I’m up $2,049 in my stock position with the ETF and I’m down $1,600 $17.35 in my options. I’m up about 350 bucks will say.
At this point you’re 350 bucks, your maximum potential you gain you were going to make was $474. At this point what I would do, go and close a trade. It’s
not your maximum $474 but you’re only three or four weeks in. I guess a little more than four weeks. We’re about six, seven weeks into this trade. I’m up
maybe not 4% but I’m probably at 3% and I’m only in it two months. That’s a lot better return investment. 1.5% a month or 3% in two months, that’s a good
return. I don’t care who you are.
If I can do 1.5% a month that’s 18% annualized returns. If you’re doing those types of returns and having risk managed like this the whole time, that’s a
great potential trade. In this case you could adjust it. I won’t go into the adjustment strategies that we teach at OptionsANIMAL right now specifically in
this but this is an idea of what you would do if you got the big pop up. The question, you end up having to pay insurance three more times. Actually I
don’t. The reason why I don’t is I just closed the trade. Get out.
Buy back that cover. Even though it’s in the money and it’s theoretically clear until December, close the trade, get out. There’s only another dollar in
change left to capture anyway. If I was sitting in a different situation and maybe that thing was still worth, maybe it was worth $22.60 instead of $17.60.
Now maybe it’s a little different argument. The options only were $16 of intrinsic but the market value is still at $22. There’s still another $6 to
I might hang in that trade for a little bit and wait. In this case with the option having very little extrinsic value, very little juice left to squeeze,
just close the trade. Go to the next one. That’s one of the things that I have to try to portray to you here. This is a trade. I’m not talking about the
gold in your safe. If I’m protecting the gold in my safe as part of my diversity, part of my retirement so to speak, part of my personal hedge against
inflation, when times are uncertain, I can buy puts in a separate account.
I can do the delta measurement to measure how many puts I need to buy in comparison to how many actual ounces of gold I own in my safe at my home or in my
safe deposit box at the bank. I’m not talking about that. I’m talking about this is a trade just like it would be on Apple or Intel or wheat or whatever …
Wheat gets a little bit tricky there because you have to be able to store it. You could trade, some ETFs that trade wheat. This is just a trade. I have the
opportunity to take advantage of momentum.
Here is where really to me, where it really hits home is showing you how I am hedged the whole time. In cases of major uncertainty which I know is out
there about gold right now. Again there’s [pondense 00:49:28] on all sides. Some people calling for $600 an ounce, some people saying this is a
generational low and you need to get back in again. For those of you who missed the run up to $1,900 last time, here’s your chance. You have to pretty
brave to be able to do that.
Either that or have really deep pockets because if you go in and buy GLD right now at $1,950 and it does drop to $800 an ounce. What’s going to happen?
Well obviously you just took a 30% haircut in your investment. If all you own is the ETF but watch what happens to the options. Again, I’ll walk you
through the exact same scenario. September is first so my put option again we’re going to see what happens in a couple of months which could go that
quickly or maybe, probably. We’ve dropped $400 in the last 60 days. We’re going to now assume that we dropped down to 80 bucks, let’s just say $85 so that
should be on my chart. $80 is off the chart right now.
My put is worth $33.88 and my covered call or my short call is worth selling the 124 dropping to August 31st and dropping the price down to $85.
Call is worth nothing. Captured it all. Did I look at the right one? Yes I did, December call option. It probably again it’s a 124. We’re talking about an
option that’s $40 out of the money at that point. We’ll still say it’s going to cost us some money to close it out. We’ll say $10, 10cents for easy math.
What I’ve done now I’ve made $500 profit of my short call. I’ve made $29.03 profit or $2,900.03 in my long put and I’ve lost watch this; I don’t want to do
math, $44, $34.51 minus $34.51.
Let’s do the math again of where I’m at if I get this enormous drop. I’m up $500 in my call option. I’m up $2,900 in my put option so for a total profit of
$3,400.03 and a total loss in my ETF position of $3,500.51. I’m not profitable here. With this ETF we just got chopped by a third. Gold just dropped the
$800 an ounce. There’s blood on the streets in CNBC right now. Panic is, mayhem is out here just running a mark amongst gold investors, and everyone’s
crying for Armageddon. I’m going to breakeven.
Folks I don’t care where stocks, where ETFs where gold is moving because of this specific type of trade. This type of positioning allows me to go in and
say alright I’m willing to bet the gold has found a bottom here and I think it’s going to move higher. You have to understand option strategies to be able
to do it. Otherwise, as to anyone’s guess as to where the gold market is going next. Personally I it’s probably found bottom. I think $1,200 is a good
entry point. We’re probably going to see it start to move higher but I’m not going to do it from a trade stand point without some type of protection like
this strategy right here.
Everybody is wrong from time to time. What I don’t like to do is I don’t like to lose money. I’m willing to give up some upside, again if we went back to
the bullish side. If I did have a move up to $1,400 in ounce right now I’m only going to make about $400. I’m only going to make $4 or $5 on that move up
on the $20 move that occurs. I’m willing to give that up for an opportunity to consistently make money time and time again by including this kind of trade.
I may have to be patient some times and let my options protect me because what happens when I get here? I do one or two things. Either I close the trade
out and just say alright I walked away from a 33% bidding on gold and I took a $50 loss plus commissions. I took about $80 loss here. Where I would have
been down $3,500 that’s one way to look at it. The other way to look at it is you can say well gold is now down 850 bucks I really don’t think it’s going
lower from here but I don’t want to risk that either so you reposition your caller trade. You sell your put you buy back your call and now you buy a new
put. You don’t have to buy clear appear $119 anymore because your cost basis is basically down at $85.
Now you buy the $85 put and maybe you sell the $100 call. If it can bounce back to 1,000 bucks. You don’t have to do very [manities 00:56:25] of these
before you very quickly can lower your cost basis to the point if you get any type of bounce back up at all. You can hit some pretty significant profits
pretty quickly and actually end up selling for a much lower price from where you originally bought in and still end up making a nice profit. Having said
that let me just summarize my trade and the go back to the PowerPoint summarize some of the key rules here. I know we’re running out of time and I know
some of you are already asking questions about okay how do I learn this now.
We’ll get to the adjustments a little. Let me get to the summary. I will say this, two key points with this. When I adjust my long put and my short call
together I buy them back same time, very rarely only in the really bullish scenario to do I really let one or two of the options stay in there. I’ll let
the short call stay in there for some time to squeeze all that premium out of it. There are two times when I do it in a bearish trade.
Number one is the ETF is found bottom. How do I know this? Due to my technical analysis. Number two is my long puts approach and expiration. If I’m there
and I’m approaching expiration, and the stock is still dropping well gold is still dropping and I want to still stay with it. Then I need to reposition my
trade. Buy that short call back, excel the long put go in and reposition. Buy in some new position. Reasons why I trade callers on gold, it allows me to
have long term ownership if I want to but I can also trade it. Gives me flexibility to trade bullish, bearish and the key thing is I don’t have to care
about the timing to be exactly right on the entry points.
It acts as a safety net for other types of option trades that can potentially get me in here ultimately preserving my capital. Like I said before I don’t
like to lose money. Warren Buffet had it right. The number one rule of investing, don’t lose money and that’s what this caller trade does for me. Let me
tell you a little about OptionsANIMAL. I know a lot of you have been asking. We’re an education company we teach people how to do this. It’s a picture of a
couple of our instructors, Eric and Karen.
We have 52 classes taught in virtual formats similar to this. We have debut live coaching sessions and you can attend those classes as often as you like.
It’s not just I attend once and that’s all you get. You can attend them each 50 times if you want and if you have the time for that, if you have the
bandwidth for that. Daily we have live coaching sessions that are open forum style where if you have questions about a trade, you can come and ask the
instructor a professional doing this.
We have two weekly streaming work updates and the midweek updates as well as the weekly market recap. We have blogs, Twitter, Facebook all kinds of
E-publications we do to keep our students informed. We have home study materials, PDF downloads for every one of those classes that you can print out if
you’d like or you can just do them digitally.
We have a weekly animal trades. Those are trades where we actually teach our students when we’re trading, showing them how we trade, and essentially them
looking over our shoulders. Lastly we have these couple of last things. We have a community that’s made up of students that is one of the best trading
communities in the world. Hands down the most educated options community in the world.
The people in it are just phenomenal. Regardless of where your expertise is, whether you’re an absolute newbie to options or whether you’re advanced and
been doing it for a while, you’ll find people in here who can help mentor you and get you to the next level of your trading.
We also offer three to four student summits per year which are all part of the tuition package when you join this. No additional costs. I know these
student summits a lot of times you’ll spend $3,000 to $5,000 to go on an event like this. We do three or four per year and they’re all just part of the
education. There’s no additional cost to attend these big live events. The next one we’ve got coming up is a little over a month from now in Washington DC.
The last one we did was in Las Vegas, the one prior to that was Hawaii.
I think our next one in the calendar after DC is Orlando. We’ve got a lot of different events that you can come to and learn in that type of style if you’d
like to. If you have questions about our education, how we can help you, give us a phone call. One thing I’ll promise you from the CEO standpoint, we will
make you a better trader. Regardless of your expertise level right now, we will help you get to that level in your investing that will help you sleep at
I know that’s one of the key takeaways that I have from trading this way. When I first started trading it’s stressful. You wake up sometimes in the morning
going, where’s Apple going to open this morning? I don’t care what gold does on a day to day basis because I’m hedged. The way I trade takes advantage of
it. If you do see interest to just have some value today give us a phone call, we’ll save you some money if you want to get started right now. Call us in
the next 30 minutes to put your name on the list for a 25% discount.
The number if you’re calling from United States or Canada 888-297-9165. If you’re international, excuse me, unfortunately 888 don’t work give us a phone
call, country code is 1, area code 801- 331-7500. Thanks for joining me today everyone. Like I said, the one promise I’ll make to you is you’ll sleep at
night and still make money. Thanks everyone. Have a wonderful day. Thanks for joining us. I look forward to seeing you all in class.