The best position I can expect to have

As you know, I'm expecting for a significant softness of gold and its stocks for some time. Here is what I wrote last week about the gold stock ETF (GDX): Most likely, two things may happen: either GDX will just chop around this level in the next few weeks to allow its 15 DMA to catch up moving towards it or it may go down by 10-15%  to meet its 15 DMA. Just within days, GDX got smacked. On Wed, in responding to the less dovish tone from the FOC minutes, GDX dropped by over 8%, the worst day within months. This is typically what we often see when a stock is too much loved with a lot of hyped euphoria in it. I'm not sure the correction is already done. Gold and its stocks may continue to go sideway or go down further in the near term. This is a healthy and necessary move if we want to see a sustainable long-term bull run.


For me, the big bang made me really happy and today is a rather felicitous day for me. I have accumulated the leveraged ETF for gold stocks (NUGT) for some time. This is a rather volatile ETF for sure, which could easily swine 10-20% within days. I used naked puts to long NUGT when it was slapped to $70-80. Then it got chased up to $120 recently when I saw a lot of euphoric sentiment as people were feverishly talking about how soon NUGT would hit $150 or even $200. When we see this kind of hype for anything at the time the underlying technicality is pointed towards the opposite direction, I know a short-term top is in. So I started to sell covered calls at $110-120 against my long NUGT positions. Given the leveraged nature for NUGT, the premium is rather high either way (calls or puts) as people tend to be too euphoric or depressed. That's great to me as the options seller. Now NUGT is closed at $89.5 today, both of my naked puts and covered calls have expired worthless on the May option expiration day. In other words, with NUGT is around $90, I'm simply walking away with all the premiums I got from selling puts or calls as my income.  Of course I still have my long NUGT positions in place and I will continue to sell puts or calls as the opportunity is presented itself. As I said, in the current situation, writing covered calls is a great strategy for trading gold stocks and I expect sideway choppy market for gold/silver will likely continue for a while. Remember, true bulls do not like spotlight. Rather they prefer to go up without much notice!