Thursday, October 31, 2013

Commodity Options: A Safer Strategy in a Volatile Market

If there was some way to design a roller coaster based on a volatility graph of the average futures contract, you would have quite a thrill ride on your hands. For those who may not be fully aware, volatility is a measurement of how “herky-jerky” the markets are on a daily basis. When volatility is high, that means that price action is expected to be wild and loose, and when volatility is low, there will be a lull in price action. One thing is for sure—neither the wild periods nor the lulls last forever, which is the reason why volatility exists in the first place. Volatility is what gives you the opportunity to profit in the markets—if prices stayed stagnant all the time, there would be no way to make any money, because there would be no expectations of price movements, which means that there would be nobody betting on the price to move in a given direction, which in turn means no buying or selling of futures contracts.

But, as we all know, the entire futures market functions around what people THINK a particular commodity will be worth in the future. This prompts them to assume the risk of entering into a futures contract, which can be financially lethal if they not properly margined, or if they are overleveraged. If you’ve ever experienced the unpleasant “pit in your stomach” feeling of getting a margin call (and I have), you know how stressful it can be when you’re assuming more risk than you’re really comfortable with.

So, for that reason, I believe that options are a great alternative to futures contracts, as they are a way to still participate in the futures markets, but for a fraction of the overall risk. Options are basically contracts that give you the right, but not the obligation, to buy or sell a futures contract for a specified price (called the “strike price”) at a specified time in the future. The two basic types of options are call options and put options. explains call options here; put options follow the same format, but basically act as a “mirror image” to call options.  There’s a WHOLE lot more to options trading than I care to get into right now, plus I’m  getting ready to eat dinner, so I’m  going to sign off for now. But I’ll leave you with this thought: Notice in my post title I said that commodity options are a safER strategy in volatile markets, but they are not completely risk-free—no investment is. Just don’t lose your head in these crazy markets.

Monday, April 15, 2013

Today's Gold and Silver Smash = Total Bullcrap

It’s hard to describe my disgust and disappointment at what the futures markets have become. I shared a little about this in my last post about price discovery, and now today seeing the absolute bloodbath in Gold and Silver, the fact that the futures markets are a rigged game is a reality that is simply too obvious to ignore. I really didn’t want to turn this blog into a “commentary” type of blog…I was trying to stick with just giving people information about trading commodities. The problem with this is that in the short four years that I have been writing on this blog, the markets have changed so drastically that I hardly even recognize them anymore, and I feel almost obligated to tell people about these changes. I can’t act like the markets are a relatively safe place to trade now. It totally sucks.

Like I said before, I don’t trade the futures markets anymore, and I don’t recommend that anyone else does either. This is not because there’s no money to be made…it’s just that the craziness of today’s markets makes it extremely difficult for the small speculator to gain any type of edge. Most of the big money will be made by big firms now…bullion banks, hedge funds and the like. The small speculator is getting his/her clock cleaned on a regular basis. You must have professional-level funding and professional-level access to live quotes, or be VERY close to the live market action to have any real feel for what the markets are doing. Today’s smash in Gold and Silver proves this all over again. It’s dangerous waters out there right now, folks.

There’s another matter that I am compelled to bring up, even though I could be classified as a “wingnut” for doing it. This precipitous drop in Gold and Silver is simply manipulation; nothing more, nothing less. There’s no way on God’s green earth that this was legitimate selling. Just look at the market action and let the price charts speak for themselves. There are extremely powerful and extremely well-funded inside interests pulling the strings in the Gold market right now. All you have to do is watch with open eyes. Forget about the bullcrap you’re hearing on the news about the reasons why Gold was sold off today. Less fears of inflation—bullcrap. Fed’s stimulus possibly coming to an end—bullcrap. Coming out of the “Great Recession”—bullcrap. These are extremely thin reasons, based in propaganda. The truth can be explained in one short blog post from King World News regarding the LBMA. A default was imminent. They simply can’t keep up with the demand for physical gold right now. The sad truth is that strong Gold equals weak Dollar, and powerful inside interests are doing everything under the sun to keep the appearance of the Dollar strong, as well as keep the appearance of the stock market strong. This so-called stellar stock market is the last bastion of our phony economy, and they’re going to promote it until the bitter end.

Gold was the primary target today. Silver was just collateral damage. Be wise enough to see what’s happening. There is coming a raging bull market in gold. Not trying to be a “perma-bull” or a “Gold bug”, just stating the obvious. This smash today was a mechanism by which the strong hands could switch sides from short to long. They will be there to ride the bull on the way up. I would suggest buying as much physical Gold and Silver as you possibly can right now, short of starving yourself. Listen to me now, believe me later.