Mile Wide Strangles for the Risk Averse Option Seller


Apr

4

2018

Mile Wide Strangles for the Risk Averse Option Seller

Click To Read Video Transcript

(Video Transcript)

Good afternoon. This is James Cordier of OptionSellers.com with a market update for March 30th. Well, when everyone first opened their account and we had a new account call, the two of us, three things were always discussed, and that is fundamental analysis that we do at our company. We are trying to analyze and discover commodities that are underpriced. Of course, in that case, what we would do is sell put premium. In cases of finding commodities that are overpriced, we are going to sell call premium, but the most important discovery of all is identifying markets that are fairly valued. That is truly our favorite positioning for adding premium and return to your account. Two weeks ago, we spoke about Goldilocks environment in commodity option selling and let me describe a little bit more what that is because we have identified and now have extremely high premium in three or four of those markets.

Gold, for instance, we have a situation in gold that it will probably be well supported because of financial activity around the world. We have very good buying of several commodities both in Europe and in Asia and a strong economy here in the United States. That will likely keep gold supported. At the same time, of course, when gold made its big run to nearly 2,000 several years ago, that was based on the idea of quantitative easing creating a great deal of inflation. What we have right now is quantitative tightening. We have a very strong global economy, which should keep gold prices supported and we have quantitative tightening right now for interest rates and money around the world, which should definitely keep a cap on any large rally on gold.

Imagine, if you will, in 2018 a $100 trading range for the gold market. That is what we see. We are also now looking at gold strangles that are $800 wide. There you are. Silver in 2018 having a $1.50-$2.00 trading range for the entire year and a $15 strangle around that market. Exactly. Crude oil. Fundamentals now are extremely supported because the United States is now exporting oil. At the same time, we’ll be producing 11-12 million barrels. That is also identifying a fairly valued market because the United States can now be the largest producer and, by quite some large number of barrels, oil should not run up to the 70’s or 80’s this year, we don’t think.

At the same time, the fact that the United States is now exporting oil, we don’t have the bottleneck happening in the Houston area, which used to bring oil prices down. We see oil in approximately a $10 trading range throughout the rest of 2018. We have just identified a $50 strangle around crude oil. So, when we talk about identifying fairly valued markets, that’s what we’re referring to, and that, I think, is going to offer great premium collection in 2018 and should be a very good return at the end of this year. We’ll just have to wait and see.

Anyone wanting more information from OptionSellers.com can visit our website. If you’re not already a client of ours and wish to become one, you can contact Rosemary at our headquarters in Tampa, FL about possibly becoming one. As always, it’s a pleasure chatting with you and looking forward to doing so again in two weeks. Thank you.

  1. James, when you say you have identified an $800 wide strangle on gold with gold projected to trade in a $100 trading range possibly, what kind of premium are you getting? Everything I look at, even out to December, has no premium with that wide a range. Either I don’t understand you or you have a magic platform.

    I love your book, but one thing that constantly confuses me is how you get these fat premiums so deep OTM, I just don’t see it and I have been looking at a lot of futures platforms with options trying to back up what you say?

    • Michael Gross Says:
      April 10, 2018 at 7:49 pm

      Alex,

      For new premium, we’re getting the best action in the February and April 19′ contracts.

      I hope that helps.

      Regards,
      James

  2. Dmitry Y Says:
    April 5, 2018 at 9:18 am

    Thanks very much for your work and comments Gentlemen! Really appreciate! Hope you will keep doing same for many years to come and educate the public!

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