Ask of survey of 10 traders on which way the stock market is heading going forward and there is no way you are going to get the same answer for the same direction. Similarly you could ask the same question to all of the Federal Reserve governors and still not get the same answer.
General Patton was famously quoted saying “when everybody is thinking the same, then no one is thinking.”
GOLD RALLY
Gold just reached a new high for 2014 this week in doing so surpassing a 38 percent Fibonacci level in the process at 1351.3 basis April futures, making a yearly high up at 1355.0 this past Monday. The latest jump was largely due to the civil unrest in Ukraine followed by an invasion in the Crimean peninsula by Russian troops.
The gold market was bid up due to safe haven appeal as war seemed possible. Russian President Putin, just a day later backed off the war like rhetoric, recalling troops from outside Ukraine’s border. Stock markets cheered and rallied while Gold, Silver and Crude Oil pulled back significantly. Unless someone has a crystal ball the Russia/ Ukraine issue could shadow over the markets head for the foreseeable future.
JOBS DATA
Combine this with the enormity of this month’s employment report this Friday and the FOMC’s two day meeting on March 18-19 and the market could see some increased volatility and wild price action. Due to the aforementioned fundamental conflict in Eastern Europe, important economic data points, and important policy announcements by the Fed, the Gold market could swing hard one way or the other, and if you asked 10 economists about Gold’s fortunes in the next four week’s you probably won’t get the same answer either.
Therefore I propose the following trade that allows traders to take an agnostic approach and therefore take advantage of what I believe will be some extreme price movement.
GOLD STRANGLE
I propose that traders look at buying options strangle on Gold using April Options. I propose buying the April Gold 1400 call and sell the April Gold 1280 put for a purchase price for 7 points or in cash value $700.00. The cost of the strangle which in this case is $700.00 is the risk on the trade plus all commission and fees. Option premiums for either the call or put will increase in value if the underlying futures price moves 40 to 50 dollars in one way or the other by the end of the third week of March. What will hurt this trade is if Gold remains in a narrow range between 1325 and 1350 for the remainder of March and before the April options go off the board. I have other ideas on how to strategize in the precious metal markets and feel free to contact me to hear about them.
WEBINAR
For those interested Walsh Trading is holding our weekly grain webinar series this Thursday February 27th at 3pm central time hosted by our Senior Grain analyst Tim Hannagan.
Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
