Can You Say Goldilox is Soaring?? Flight to Safety? This Shiny Metal is Hott in January!! Gold Options Honey? By: Tim Bolger

Who does not love Gold?? Well, maybe not everyone because it does not pay a dividend to investors.  But, I love this shiny metal!! Like Gold or not, it has been a big winner for many investors over the past few years and has provided alot of alpha to investment portfolios that would have otherwise suffered severely from high exposure to financial stocks, the sovereign debt crisis, volatile global stock markets and high unemployment around the globe.

We all know that thus far, the Federal Reserve’s monetary policy has involved printing way too many U.S. dollars to fight this recession, has kept the Federal Funds Rate at historic lows, and the result has been a very weak U.S. dollar… I translate the current economic scenario as one that makes me want to buy lots of Goldlilox!! I love gold coins and love owning the Gld.  Getting long exposure to Gold is easiest to get with the Gld (SPDR Gold Trust).  Gold hit a high of over $1,900 per ounce in 2011 and then got hammered along with several other precious metals in the month of Dec 2011. Gold fell close to $1,500 an ounce…that was painful for many Gold bulls in the money of Dec and led them to flee to the sidelines, many of which were forced to sell because of big margin calls on this commodity. Margin gives you great leverage at times, but it is very risky for volatile commodities in the short and long run…Margin calls can wipe you out of cash and trading on Margin is not recommended for many retail or institutional investors.

The sharp sell off in Gold in the month of Dec 2011 spooked alot of Gold bugs out of this shiny precious metal. Was the massive gold sell off just a huge head fake or is the bull run in Gold over?!…I think it was more of a short term correction in the shiny yellow metal…the sell off I believe was further exacerbated by lots of profit taking, margin calls and a short term phenomena. I am a firm believer in owing Gold for the long term and as a means to protect wealth…I believe Gold is a great safe haven from all of the macro-economic uncertainty prevailing around the globe!! Gold protects us against a weak global equity market and a weak U.S. dollar(which means high inflation).  Gold is a great hedge against major global economic issues(eg sovereign debt crisis in Europe), but I also believe that Gold can still run to $2,100 an ounce even if the global equity markets continue to move higher…Over the past 3 weeks we have seen Gold spike higher and I think the Gold train continues to run higher baby!!

Options trade#1: Yahoofinance Gld Jun 15, 2012 Options chain: http://finance.yahoo.com/q/op?s=GLD&m=2012-06.  I would consider buying the Gld 165 Jun 15, 2012 Call Options for $6.00 a contract. 5 contracts will cost me $3,000 plus trading fees and get me long exposure to Gold(500 shares of the Gld SPDR Gold Trust at $165 a share). If Gld trades to 175 before this options’ expiration date, this trade will be worth $5,000+. Take a look at the yahoofinance chart below on the Gld. Gld has moved significantly higher after being crushed in the month of December and I believe the longer term trend is to the upside. Good luck longs and remember that this is just a hypothetical scenario for everyone. Consult your financial advisor before making any trades…see the Optionshoney disclaimer. Options trading is not for all investors and is very risky!! Do not play if you cannot afford to lose all of your money invested in the contracts you may decide to purchase. Optionshoney  disclaimer.

The more conservative play is just buying these lovely American Eagle Gold Coins exhibited below and hold them forever!! Several other Gold Coins and Gold Bars are available for purchase from vendors such as Monex.com. Photo is courtesy of http://www.monex.com:

Hecla Mining Pounded on Huge Volume!! Let’s Mine the Honey with Options… By: Timmy B.

Hecla Mining(HL) is down on heavy volume today as Reuters reports: UPDATE 1-Hecla cuts 2012 silver production outlook at Reuters(Wed 8:37AM EST).  Hecla Mining was originally founded in 1891.  Hecla is headquartered in Coeur d’Alene, Idaho and has a majority of its mining operations in the U.S. and Mexico.  Hecla’s primary business focuses on the discovery, production, and marketing of the following metals: gold, silver, lead, and zinc.

Hecla paid a .02 cent dividend on Nov 16, 2011 and traded to an intraday high of $11.56 on Jan. 3, 2011. Personally, I feel that Hecla is being punished severely in the short term by this news on cutting it’s 2012 silver production outlook.  My thesis is that this is a short term thunderstorm for Hecla Mining and that with the continued sovereign debt crisis around the globe, printing more U.S. dollars and inflation on the horizon, metals continue their long term trend higher. Higher metals prices will lead to higher profits and revenues for mining companies like Hecla Mining.

I definitely like the stock at these price levels and HL is trading down over 26% today, with an intraday low of $4.25.  I think the best trade here can be made using “Options” to benefit from the weakness in shares today.

So, the million dollar question is,  how do we make money on HL share price weakness?? Remember, one of the keys to profiting from options is patience and executing our trades at the best time, in an attempt to achieve our end goal of making money!! Tens of thousands of trades exist at all times and we seek to discover some of the best here for our followers at OptionsHoney.com.  Timing is so important to making money in the short and long run. Remember time value+intrinsic value=option premium we pay for the right to buy or sell puts/calls. In addition, high levels of volatility increase option premiums. When stocks fall significantly, the cost to protect these shares with put options rising significantly. This creates opportunity for the trade I want to make on HL today.

Option Trade#1 on HL: I like selling the HL Feb 18 4 puts for .25 cents. By selling 40 HL contracts, we collect a premium of $1,000($25 per contract x 40 contracts sold). If HL shares close above $4 at Feb 18 expiration we profit the $1,000 minus trading fees. Worst case scenario, we get exercised if the shares decline below $4 at expiration of the contracts and we have to purchase 4,ooo shares (40 contracts x 100 shares per contract) of HL at $4 a share for a net cost of $15,000 plus trading commissions (16,000 gross to purchase shares-$1,000 initial credit received for selling the $4 strike put options).  It is very important to remember that we need $16,000 in cash in our brokerage account to make this options trade as collateral to buy the shares of stock at $4, if we get exercised at expiration. Selling options is alot more sophisticated than just buying puts or calls. Feel free to ask questions that you may have.

Long term, I believe Metals and HL will trend much higher.  I am comfortable with the worst case scenario of having to go long HL shares at $4 if we get exercised.  Selling the put options helps me finance the potential purchase of these shares and take advantage of the increased volatility in HL shares with the bad news reported today.

Option Trade#2 on HL: I like buying the HL Mar 17 2012 $5 strike calls for .30 cents.  I can buy 10 contracts for only $300 and have great exposure to a near term bounce in the shares after this huge sell off today. The advantage of buying the calls is that I do not have any obligation to buy the underlying asset and cannot be exercised if the shares expire below $5 at expiration. My total risk of buying the $5 Mar calls is the $300 (10 contracts x $30 a contract)l plus trading fees.

It’s important to note that your broker is required to exercise those call options on you, even if they are only a penny in the money (meaning you get exercised if HL is $5.01 at expiration). To avoid being exercised, you need to call your broker’s trade desk and tell them not to buy the shares…Buying the shares would also require $5,000 (1,000 shares at $5 each) in cash in your brokerage account.

Source of Hecla Mining Chart: Fidelity Investments

Show me the honey!!! The Buzzzzzzzzzzzzz goes on and on baby!!

–Timmy B