Everyone keeps saying “gold is going up”.  It seems to make sense as our government is printing money as fast as possible.  However, gold hasn’t had a huge run yet probably because all of the other countries are printing money as well so everybody is deflating their currencies at the same time, lessening the blow to the dollar that you’d expect.  At some point though the printing madness has to stop and we have to let inflation take its course.  At that point gold will rally hard.  However, I don’t know when that’s going to occur, but I think we’re probably 2-3 quarters away from seeing inflation come back in so I figure I’d try a LEAP (Jan 2010) call spread on the GLD.  Buy the 100 strike, asking $10.80, and sell the 110 strike, bidding $8.00, for a net debit of $2.80.  The max profit is $7.20 for a 257% gain if GLD is greater than $110 at expiration.  My exit plan is to get out if the spread goes down 50% (to $1.40) or wait until expiration hoping it expires in the money.  I picked these strikes because I figure the chance of going up $21 (24%) in 1 year was very likely, and I picked a $10 spread because I usually like to pick spreads that are about 5-10% apart.

I like to have a few LEAP spreads around with small amounts of money in them.  These are like CDs for me, except with much higher reward potential.  And with that much time out you can get some nice risk/reward ratios if your long-term thesis is correct with minimal risk.

LVS has just been absolutely murdered this year, down about 96%!  However, some are starting to call a bottom here and it could be due for at least a brief snapback.

While looking at this stock I see a couple of interesting options opportunities.

1) 5.00/7.50 vertical spread.  At this price the spread would cost you, at market prices, $0.90 (buy the 5.00 strke for $1.10, sell the 7.50 strike for $0.20), but the 5.00 strike is already $0.58 ITM so the extrinsic cost of the spread is just $0.32 as long as the stock stays above $5!  The max profit is $1.60 (7.50-5.00-0.90).  However, since the 5.00 strike is ITM and has $0.58 of instrinsic value, you’re only risking $0.32 of time value.  Therefore, it’s possible that the spread could be worth $2.50 at or near expiration, when you only put $0.32 at risk, an almost 8:1 reward ratio.

2) Going synthetically long (buying the 5.00 call, selling the 5.00 put) would cost you $0.70 (1.10 - 0.40) and, near expiration, for every dollar the stock rises, the value of the synthetic stock rises.  Synthetic stock is very risky since if the stock goes down you can lose money very quickly as well.  But if you’re very certain it’s bottomonig out here, a synthetic long gets you in the stock at $.070 instead of $5.58, risking much less money up-front to get long the stock.  If the stock goes to $8, for example, the $0.70 position would be worth $3.00 since the 5.00 call would be $3.00 ITM and the 5.00 put would be worthless.  That would be a 329% gain!  However, if you bought the stock and it went to $8, that would be just a 43% gain.

However, there are 6 trading days left before expiration so these moves would have to happen soon, but with this market so volatile it’s certainly within the realm of possibilities.  Again, as a warning, synthetic stock is very risky.  If you trade these do so with very little capital that you’re OK with completely losing, because it could easily happen.

Remember that APA 125/135 call spread that I mentioned earlier as having sold for a 100% gain? Well, turns out that same spread expired worth $9. I bought it for $1, sold it for $2. Had I held on, I could have sold it for $9 for a 800% gain! That’s one thing I liked about the trade when I put it on in December: it had a potential 9:1 profit ratio and it fulfilled it’s full potential last week as APA closed over $140.

Now it’s always easy to look back and kick yourself for not holding on longer, but a 100% gain is a pretty juicy gain and one you’re going to want to keep. So, what I’ve heard that other traders do is if they have a position that has doubled in value and they think it may run even higher, they will sell half so at worse they break even if the rest of the position becomes worthless. Meanwhile they’re still in the game with the other half. That would have been nice if I had done that here.

I sold my Apache April 135/125 call spread yesterday after I had reached a 100% gain on it. I could have probably made more as oil is up even higher today, but I wanted to lock in a rare profit for me.

This trade was very attractive to me at the time when I bought it in December, it had a potential 900% gain if the stock hits 135 by April expiration, but as March options are going to expire soon theta is going to kick in pretty quickly and if I don’t start to get in the money soon then I’d be really hurting. APA has already had a nice run-up lately and in this market things don’t continue going up for very long so I wanted to take the profit I had while I still had it. Looking at it today, I would have been up only 85% so I’m glad I sold when I did.

This was perhaps the longest time period of an option I had ever purchased: 4 months! At the time I bought it APA was over $100 a share, then it swooned downed to 90 then recently rallied with oil and natural gas rallying. It’s been a wild roller coaster ride but buying that extra time allowed me to get into or near a profitable price point through the crazy volatility.

NOTE: after taking a second look at this chart I just noticed a couple of “hammers“. I just read about hammer and hangman reversal signals earlier this week in TASC and this chart has a good example of two hammer trend reversals.

My first batch of Elliot Wave 4 buys using my new ProfitSource software stopped out for a 50% loss. This software’s predictions are supposed to be correct about 70% of the time if you add in the Fibonacci projector and the oscillator correctly. So far I’m 0-1 with it

I had purchased a March OTM bull call spread after the green bar breakout over the EBOT (Elliot breakout trigger) thick blue line but it never really got any higher than that and retraced back to where it was previously and, in today’s market, even lower. Looking back in retrospect, this didn’t look like a good trade as the oscillator didn’t make higher highs when the stock made higher highs. I’m not sure why I didn’t see that before when I put on the trade. If I had I wouldn’t have done this. Ouch! Maybe I was too anxious to put my new software to work.

LATER….

Well, it’s back up from where I sold it but too bad, I had to follow my rule and get out when a position is down 50% or more, so no crying over spilled milk.