A funny thing about Gold is, people who have any kind of opinion on it are either EXTREMELY bullish, or EXTREMELY bearish. There tends not to be any middle ground. No surprise it is such a politicized instrument.
Well, I don't care about any of that. What I do care about is volatility priced into options in this space continues to be pretty juicy at the moment while prices of many Gold underlyings appear to be stuck in a sideways holding pattern. (You won't hear any talking head loudly yell on CNBC: "I THINK GOLD GOES SIDEWAYS!" LOL).
And the boys at ASC agree with me, having published a neutral opinion on it in their recently published ASC 4th Quarter Playbook. So let's get into the play that makes most sense from here.
We've been bullish precious metals since the 4th quarter last year and even coming into 2019. We're not gold bugs, thank goodness. The risk vs reward was just skewed in favor of the long side, for a variety of reasons.
One of those was the fact that commercial hedgers were actually net long. They're never net long, and literally always hedged. For me, these Commitment of Traders reports are usually just noise, EXCEPT when they're at extremes. We want to pay attention when the rubber-band is stretched. And so we did, and Gold ripped!
Now we have the opposite scenario. Commercial Hedgers last month had on their largest net short position in history (345,145 contracts):
Last month, I put a trade on that didn't work out. Believe me, it happens (shocking, I know! /EndObviousSarcasm). There was a level that invalidated my thesis and it was breached. I don't fight with price action. When price is speaking, I listen. So the trade was exited and I moved on, accepting my manageable loss.
Fast forward just one week from my exit and the chart has repaired itself and has established a newer, clearer level to lean my risk management against. My overall bullish thesis on this stock hasn't changed, and now with new levels to observe, I'm going back in for a new try with a similar spread, but at new strikes and a new expiration.
Think about how well everything is going this year! The S&P500 is up almost 20%. Bonds are up 22% and even Gold is up 17%! Heck Bitcoin has more than doubled! Can things get any better than this???
Geez... the calendar turned into October and traders are acting like Halloween is already here! The up-and-down trading action so far in the first three days of October can be downright frightening if you're chasing every whipsaw in this schizo tape.
Considering my portfolio is leaning a bit long at the moment, it feels prudent to put some downside exposure on.
The biotech space has been a laggard all year. If broader markets still have additional spook in them, it is likely biotechs will lead the way. So I'm positioning myself accordingly.
How are you liking the day to day swings in the market? Is it too much for you? Go through this checklist and make sure these questions are answered before moving forward.
Today, I thought it would add value to take a step back and see what's happening in the market bigger picture. They love distracting you with noisy headlines, but the way we approach it is: Whenever In Doubt, Zoom Out!
Here's how we see things in Stocks bigger picture:
