Gold and Oil Markets: Summer Cash Cows for Option Sellers




Gold and Oil Markets: Summer Cash Cows for Option Sellers

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(Video Transcript)

Market Update July 25, 2018

James Cordier

Good afternoon. This is James Cordier of with a market update for July 25th. Well, I want to thank everyone listening and watching us today. Thank you for being patient. I actually took a few days off this past week. I was researching the walleye crop in the Great Lakes for a few days and I am certainly well rested and I do have a right arm that’s a little bit more tired than usual. We were pulling them in left and right and, boy, was that fun. The walleye crop is doing quite well. The harvest was excellent. Coming back to the office this week, we notice many things that we’ve certainly been discussing over the last several weeks… basically, precious metals and energies. Quite often, you’ll hear me talk about identifying fairly valued markets is what we really strive for here at Quite often, people are talking about the next big move in commodities or a stock, whether it be up or whether it be down, and people swinging for the fence. Here we really enjoy looking at some of the most liquid markets and identifying when they’re going to possibly go in a sideways trading fashion.

Over the last 12 months we did have a lot of fundamental changes in commodities, namely in the precious metals, we had what everyone was talking about, a weak U.S. dollar, and the fundamentals in the United States were so awful, really, going forward. Lo and behold, 6 months later everybody loves the U.S. dollar. The fundamentals for commodities and precious metals normally turn down with a strong U.S. dollar. Of course, everything is priced in the greenback. The gold market fell some $75 over the last several weeks, silver fell over $1 an ounce during the same timeframe. Basically on a strong greenback the supply and demand of gold and silver didn’t change, but if you’re in India or you’re in China you did not see a drop in gold prices. You actually saw them go up in many cases because of the devaluation there, a big fundamental change in gold and silver.

What normally happens after this takes place is options go crazy, whether it’s the market falling and people feel that buying puts is now a good idea or whether the fact that gold looks extremely cheap to many gold bugs and then calls get expensive. We took quite a bearish position in gold at the beginning of the year and we did have quite a decent decline in gold prices and our calls did extremely well. We feel now that the fundamentals in gold are probably evening off right now. We don’t see the dollar’s climb continuing forever and we do see a lot of speculative investors going short gold. As a matter of fact, in The Wall Street Journal this past week, speculative gold positions betting on lower prices reached an all-time high. That sounds very similar to when gold was trading $100 higher from here. That’s when speculators had record long-positions. We do like speculators, we love hearing about this, and it does cause a lot of uncertainty in markets that are relatively stable, basically playing into our hands.

We think that gold and silver are going to be stabilizing near these levels. Gold could still fall another $25 or $50 and, of course, it could rally that same amount in the coming months, but really creating a great opportunity for strangling the market. In other words, placing positions based on fairly valued markets. We do like the fact that gold is probably going to be staying in a $100 trading range, albeit slightly lower than it was 3 months ago. We have $500, $600, and $700 strangles around the gold market and in silver it has come down a dollar from when we spoke about it earlier. We have an $8, $9, $10 strangle around that market. Fairly valued markets can pay us on both sides by shorting both puts and calls, writing those simultaneously, and I think we’re starting to get to know how well that can pay off. We do see that happening through the rest of the year. We think those positions are going to be quite good.

The exact same thing is happening in the oil market. We recently had a huge glut of oil worldwide. That has basically evaporated with smaller OPEC production and very strong demand out of Asia. The oil market has rallied approximately $10 over the last 6 months. We see it now kind of hitting equilibrium. We have a strong demand, however we have very large supplies, especially here in the United States. We recently, with this brand new speculation in the market and large volatility, have put a $50 strangle around the price of crude oil. If we’re looking for a $10 or $15 move up or down from this level, a $50 strangle I think is going to do extremely well. In other words, selling calls and puts $25-$30 above the market and $20-$25 below the market, we feel that’s going to be an excellent opportunity going forward. We see these two markets being fairly valued at this level and we think we’ll take great advantage of that. We’ll just have to wait and see.

Anyone wanting more information from can visit our website. If you’re not already a customer of ours and would like to become one, you can speak to Rosemary or Alicia at our headquarters in Tampa, Florida about possibly becoming one. As always, it’s a pleasure chatting with you and looking forward to doing so again in 2 weeks. Thank you.

  1. matthew gabor Says:
    July 26, 2018 at 1:22 pm

    I am from the Cleveland area and am glad you enoyed the Walleye fishing! I love all your newsletters and videos! I hope to meet you gentlemen one day. Take care and keep up the good work!

  2. Hi James:

    You talk a lot about identifying fairly valued markets.

    What are the major factors you look for to determine if a market is fairly valued?

    Does it involve price movement, fundamentals, seasonality, technicals, or a combination of all of these? Is it something developed through years of observation, or how can you develop this skill.

    Thank you for all the good learning information you put out for those of us managing our own funds in selling options below your minimum level of client acceptance…

    • Michael Gross Says:
      July 31, 2018 at 3:22 pm


      Fairly valued is most often determined by taking current fundamentals and comparing them with past years with similar fundamentals. Time of year matters too and so seasonality does come into play.

      I wish I could give you a formula or a short cut, but there are none. Identifying fair value is more of an acquired skill. My advice is to study fundamentals, study the seasonals and trade them. Over time, you will start to develop a feel for the specific markets you trade.

      It doesn’t mean you cannot make money selling options in the meantime. But that “feel” can make you more efficient in your trade selection and hopefully, in your annual results.

      Good luck!

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