Election Volatility Creates Overpriced Commodities Options; Opportunity for Sellers
Good afternoon, this is James Cordier of OptionSellers.com, with a market update for November 4th. Well, November 4th is certainly close to the election now and the next time we get to chat we will know who is governing our great country, and the world for that matter, next time we speak. What is so interesting right now is we have investor after investor contacting both us and certainly conversations that you hear when you’re out and about. I know I sound like I’m from Canada- I’m really not.
Talking about do you want a Clinton presidency or a Trump presidency to help the market… that part is certainly a difficult thing to understand. Quite often, the republican is considered bullish for the stock market and, lo and behold, the democrat wins and the stock market rallies, or sometimes vice versa. Once again, as Michael Gross and I continue to point out, that matters to us very little.
What a lot of people right now are trying to do is diversify their portfolio, not only because there’s an election coming but also because the stock market appears to be at somewhat lofty levels, considering the state of the U.S. economy and the levels that the stock markets reached over the last several years. What Apple does and what the price of cocoa trades to has very little to do with each other. Gold and what McDonald’s does has very little to do with each other. A lot of new investors are investing in diversification and that’s something that I think we provide quite well.
Whether we have a blue win or a red win here in the next few days, we think that commodities are going to continue trading on their own fundamentals; however, what we are very excited about, just like the BREXIT vote back in July, the U.S. vote for presidency coming up is dramatically increasing premiums in both puts and calls across the board in commodities.
As our clients, you know that we’ve been taking profits and letting commodity options fall off recently as we’ve gone to quite a great deal of cash going into the election. Not that the election is going to change fundamentals and commodities, but what it does do is it offers great opportunities as premiums on both puts and calls increase, just like it did early in July with the British vote.
What we’re looking at doing right now is positioning based on the fact that commodity fundamentals will not change but premiums continue to increase. The additional funds that we’ve captured recently, we are going to be putting to use just before and just after the election by selling what, we think, are extremely over-inflated premiums on the commodities that we follow.
A couple interesting things that we’re looking at right now is in 2016 OptionSellers.com has been neutral to negative on commodity prices based on overproduction and smaller demand than what we’ve seen over the last several years. Crude oil supplies continue to balloon here in the United States. Crude oil is pushing down towards the mid-40’s recently after currently trading in the 50’s. We still think crude oil has a little bit further to go down in the months of November and December, setting up what we think is going to be a great put selling opportunity as we approach the holidays. The June/July timeframe will be the puts that we’re selling for next year’s driving season. We love that trade and looking forward to doing so.
One of the other things that are setting up for the first time that we’ve been seeing in quite some time is the first dream shoots considering inflation. Inflation we see coming back slightly in 2017 and the magical part about it, central banks around the world, in our opinion, will be very slow to try and slow inflation, and thus we might get higher prices in many commodities starting in the 1st and 2nd quarter of next year.
Chances are, we’re going to see gold and silver prosper from the situation and we really like being long gold from 1,000, long silver from $12.50 an ounce. We probably see those markets are rallying 10-20% next year; however, staying well below our short positions, gold at $2,000 and $2,100 an ounce, its never been seen ever in history and we’re not going to get that type of inflation next year to have that develop next year, as well. However, gold bugs will be out in full force over the next 30-60 days and we’ll be happy to let them go long at $2,100 if they like.
Anyone wanting more information from OptionSellers.com can visit our website or contact Rosemary about becoming a client if you wish. As always, it’s great chatting with you and looking forward to doing so again in 2 weeks. Thank you.