Gold (at one month highs) and Platinum shine again: Cornering $GC_F into expiration!

Today was one of those days where the metals became a safe haven as uncertainty had stocks and the USD on the edge. I have been staring at Palladium and Platinum as this Volkswagen headline coinciding with 5-6 year lows in Platinum had the precious metals “in the news”. I knew this would create something, this in addition to some of the other commodities and fx gyrations we had today was the perfect environment for Gold and metals to shine.

Gold for December delivery rallied $22.30 or 2% per ounce, settling at $1153.8 on comex nymex… this is a massive leg higher for the usually sleepy boring old metal. This is significant as now Gold pivoting around the 1150 level brings the safe haven to its highest close since Aug 21st. Some say it was the weaker economic data, some will say it is because the fed didn’t raise, I am saying it is because Platinum set up a short squeeze as the headlines created a funky order flow a few days ago… but who cares– it doesn’t matter why it happened, it matters that it happened– we are here to trade it.

I have been stalking the precious metals for a long time, for years actually, so a day like today is precious as the last few years — we don’t go up as often (and I generally scalp to the upside). I mention this because overnight and this morning, the rip higher, the strength in GC’s ability to short squeeze has been ingrained in my brain — one of the first things I ever learned when I started trading was: “You can’t short Gold or Oil”. For a long time, this was the bible, this was true, anyone around me who was shorting these commodities specifically ‘without a good reason’ was consistently getting screwed or blowing out. *Times were different, markets were different, etc. etc…. blah blah. But there is truth to that, clearly we are in a different era of trading today — it is not that markets have changed, but the
options / products have changed, — the leverage has changed.

I think with weekly, quarterly, and end of month options, the ability to “trade” has never been easier (for lack of a better word). I say easier in the sense that: anyone can do it (or try it). Not saying they will be successful or that a certain strategy will work, but literally, there are so many different ways and plays one could make to invest/trade anything. By using the different options, one has the ability to define and take such precisely leveraged trades like never before. Where as back in the day maybe we only have monthly or quarterly options, now we have not only both of those, but also weeklies, this means that the market has the ability to move as much in one week as it used to in a quarter or month. People are able to define their risk so intelligently, and accurately with the tools today, I think more than ever- anything is possible and time isn’t an issue, markets never have moved faster. The market doesn’t care about me, I know this, so I just try and be conscious of the aforementioned thoughts and it has thus far kept me in the game.

As far as gold and platinum go, the best part about the trade was that I waited for it, and it worked out. I was patient, honestly had to talk myself into just trusting the position and since I could define my risk using the options that were expiring earlier today in Gold (GC), I knew what I was risking, and the upside was unlimited. Basically, with the fact that expiration was today, this made it so premiums were very cheap and I could get leveraged up on the shiny forgotten bullion for very cheap. Think about it this way, if every GC margin with the broker is 5500, and I go long 1 GC at 1125, I have $112,500 worth of Gold at risk (if we fell to zero lol), and I need to have $5,500 in margins to hold the position… but since it was expiration, I was able to buy GC 1125 Calls for lets say $3-$5 in premium, so risking $300 to $400 per 1 lot of GC 1125C strikes… Well luckily, we ended up rallying to 1155 today, so these were worth $30 each ($3000 per) for example with the 1125 strike calls, (since they were ITM $30 1155-1125), and sure you could have made the $3000 if you were just long the original outright too — but what if I didn’t get so lucky, what if gold didn’t rip 22+ points, what if it actually stayed where it was, or worse, what if it dropped -22 points! *Being able to define my risk, like the way I was able to leverage up in Gold (using futures options) and continue to ride it up since we were below 1080 this year… that is what has kept me in the game, *not missing out on “up days” like today. Platinum in the 5pm session last night, by 7pm was already +26 points, at that time Gold GC had barely moved– I felt it would catch up, and as it started to come up slow, very slow, I was even rolling up puts since they were so cheap (so if I was wrong, gave me waterfall downside protection). Either way, I was focused not on where Gold GC was that moment, but where it would be in the future, — and it worked out huge. Finally- trading the GC left me with Gold, not coal.

*But that being said, as everyone is now seeing or reading about the flight to quality or fear bid into gold, (from selling stocks) — it makes me want to be long the Spoos ES more than ever, since everyone else is throwing in the towel on stocks, maybe it’s my time to find some treasure. Hmmm… On to the next market/trade.

Let’s try again tomorrow. – Happy Trading.

-Bret Rosenthal