Buy Alert: October 14, 2013

| October 14, 2013

Buy Alert:  October 14, 2013


Option Strategy:

Buy iShares Comex Gold Trust (IAU) November 2013 $12.00 puts for $0.25 or better.


Commodity Outlook: Gold

Quite simply, gold is stuck…

Here we are, just a few short days away from breaching the US debt ceiling, and the yellow metal is weakening instead of pushing higher.

That’s a big red flag for anyone bullish of gold.

What’s more, with the current state of affairs in Washington DC, it’s extremely unlikely that Ben Bernanke and the Fed will start tapering operations by the end of the year.  That’s yet another bullish factor for gold that investors are completely ignoring. 

And that’s not all…

Last week’s nomination of Janet Yellen to Federal Reserve Chairman is the most bullish gold signal of all.  Yellen is on the record saying she will continue with quantitative easing until US employment levels drop below 7%.

That means we have a lot more inflationary pressures coming our way.

… yet still nothing from the gold market.

Due to this underperformance in the face of bullish fundamental changes, it’s increasingly likely that the yellow metal will drop to the recent July low of $1,200 an ounce when Congress announces a debt ceiling deal later this week.

That’s why we’re buying low-priced iShares Comex Gold Trust (IAU) puts to capitalize on another leg lower in the gold market.

Here are the important details you’ll need for this trade…


Trade Metrics:

Underlying ETF Symbol: IAU
Call or Put: PUT
Expiration Month, Day, Year: November 15, 2013
Strike Price: $12.00
Current Bid/Ask Price: $0.15/$0.20
Maximum Buy Up To Price: $0.25
Maximum Risk Per Contract: $25

Here’s a breakdown of the important technical support and resistance zones in gold…



Exit Strategy:

Remember, we want gold to move lower.  Our first profit target is $1,250.  If selling really builds in coming weeks, we may see it drop to $1,190 or lower.

I’m not putting a risk control line on this trade.  With a max buy-up-to-price of $0.25, you’re essentially making a $25 per contract bet that gold drops to our target levels in the next few weeks.  

That creates an extremely good risk/reward ratio for this trade!


Category: Commodity Trading