[Update] I've just added some charts.
Our fund just covered Gold and Silver shorts earlier this morning, which we established in middle of August and also September (Article: Portfolio Update: Short Gold). Our profits on this investment were decent compared to the capital we risked, but to be honest I am personally a little disappointed with the Gold trade because I think it will go lower while we cannot hold anymore due to option time expiry.
Our style of investment has always been to buy or sell something and hold it until the trend ends - similar to what we have done on Sugar earlier this year (Article: Portfolio Update: Profit Taking On Sugar). Unfortunately, with options one cannot achieve that type of execution due to time factors. To me Gold and Silver are oversold, but could very easily go lower - especially Gold which might break below its 200 day MA.
Having said that, various Silver sentiment surveys reached bearish levels I have not seen in almost a decade, this week. We now have more bears than we had when Silver dropped 60% during post Lehman Brothers in October 2008. That in itself is a signal of skewed probabilities for the bears, so we thought profit taking outweighs risks for further gains.
We purchased OTM Puts on Gold when it was trading above $1,900 at its first peak of the double top, while the IV was still reasonable compared to these days. With Silver we used CFDs with very high leverage and minimal capital risk on a second peak in early September - in other words our stop loss was very tight. Gold returned about 4 times our risk and Silver returned over 5 times.
With that in mind, I have also updated our Portfolio page and our outlook on various asset classes. With such dramatic falls in various commodities, junk bonds, foreign currencies and emerging market equities, we now have a neutral or even bullish stance - like Agriculture - from previous cautious outlook. At the same time, an insane rally in government bonds has now turned us very cautious on this asset class from previous stance of being neutral. LT means Long Term, ST means Short Term. Long term means 12 months or more, short term means few months or more. Here is the update:
DM Equities: LT neutral, ST neutral
GEM Equities: LT neutral, ST neutral
Govt Bonds: LT super bearish, ST cautious
Corp Bonds: LT bearish, ST cautious
GEM Bonds: LT bullish, ST neutral
Agriculture: LT super bullish, ST bullish
Energy: LT bullish, ST bullish
Indust Metals: LT mildly bullish, ST cautious
Precious Metals: LT super bullish, ST bullish
US Dollar: LT super bearish, ST neutral
Foreign Currencies: LT bullish, ST neutral
Hello
ReplyDeleteI would like to know how to calculate NYSE Down Pressure too.
Renaud
Tiho:
ReplyDeleteWondered when you would pull these trades. Good for you-shorting into the teeth of the excessive bullishness and cashing in two profits.
Keep up the good work-Warren Buffet will be watching over his shoulder.
Renaud - To get Down Pressure you just do basic maths. Pretty much to work out what daily reading of down pressure was for the S&P 500 you would take an average between total down points and total down volume. That average will give you percent reading of Down Pressure. Than, you can average it out over 5 days for a trading week, or 10 days for two weeks and finally 21 days for a trading month. Hopefully that helps.
ReplyDeleteAnonymous - To be honest with you I would still be short Gold if I did not execute the trade with an option. I had to cover here, but if I just shorted Gold normally, I think it still has legs to break down further. Having said that, risk reward for further Gold negative is now unnecessary. To be honest with you I am now normally bullish on precious metals again and will be looking to deploy some cash in this area eventually.
hey tiho seems your timing is perfect as always. i am trying to figure out what you do. if i had to guess you waited to see if there was going to be a follow through with selling and after several days tape said "no" so you got out.
ReplyDeleteso simple but truly remarkable skills. seems that many do not appreciate this on your blog yet. after the post what happens? gold and silver start rising.
my question is why didn't you buy back in? i take it you are waiting for retest of the original lows?
sam from canada
p.s. your blog is great
You are pretty much spot on Sam, it actually is so simple in theory but so hard to do in real time.
ReplyDeleteUnfortunate or not with the expiry of your options, it looks like you did the right thing and sold at a very good time.
ReplyDeleteWe'll see how things pan out, I think we're at another crossroad today. Unfortunately, I only have 30min of online time today.