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Gold run....copper and Greece drop

Apr. 17, 2011 5:26 AM ETVXX, GLD, FXY
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This week markets declined lightly with mixed movements on major indexes. Big name disappointed investors because of earnings and/or sales. Investors sent down shares of Alcoa (AA), JP Morgan (JPM), Google (GOOG) and Bofa (BAC) after results. Not a good beginning of the season!

In this contest I don’t try to pick up a stock ahead of results because most of stocks I have in my check list are leaders stocks, with strong growth and maybe analysts could have set expectations too much high. I prefer miss the opportunity and pick the trade after the earning (maybe a cov call or a spread if stock jumps). Moreover the rebound missed volumes...higher only in options'maturity day.

Euro continues to push higher vs. Dollar and this means “risk on” button still active. But 1,45 is a strong resistance level and the yen appreciated in the last days. This latter could signal that optimism among investors is getting weaker. According a report of Bank of America, last week optimism among investors’advisors newsletter was very high and that could drive a taking profit session in the short term.

Let’s go to trades…

First the pain…I was stopped out on the ETF Greece “thanks” to restructuring voices about Greek debt…thanks Germans.. ..also the long seasonality copper was closed with a loss. For the first time since 2005 the trade (buy after Chinese Lunar New Year and sell after approximately 2 months) gave a negative result… it happens. Avoiding putting all eggs in one basket helps to overcome this bad moments. Being a amateur poker player (Sng) I learnt to cope with also 15-20 consecutive table losses, but in the long run I am still well ahead thanks to risk management. The same apply with trading where you can take 5 or 6 times consecutive stop loss, also more if you open more positions in the same short term period of time.

Let’s come to the happy stuff. Gold (GLD). As I posted last week, I opened a spread on GLD and it’s profitable at the moment. My higher strike is 139 and if I’d sell now I’d have just the 45% of max profit potential…too low. This because of the actual wide bid/ask on the spread. By the way, if prices stay high, it should begin to tighten in 10 days. I expect gold to touch 1500$ (maybe trying to spike above)before a deep correction of 150$, therefore I’ll hold the bull spread. It’s going to expire in May.

I also monitored the Vix Etf (VXX), noted an interesting pattern, but before trying to exploit it, I need a rise of volatility. On the yen, I could try to open a long term bear spread on FXY if would reach 121-122. (equivalent approx at just a bit above 80$/yen cross.


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