Looking for ideas to protect open gains in gold and silver within my VP.
I have not done this before...but want to learn pros/cons of
-Put options on GLD, SLV etc
-DGLD or other inverse ETF
-other
I propose a scenario where GLD / SLV pull back to the 200 day moving average
Protecting open gains in Metals
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murphy_p_t
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Re: Protecting open gains in Metals
Just my $0.02 of course....
Long options are tricky because you can be right about the direction and still lose money because of time decay and you have to have some way of calculating whether an option is over priced or under priced relative to volatility.
I've experimented with options and still use them occasionally, but you are probably competing against some pretty astute players when you swim in that ocean.
Personally, I would just take your profits. If you're up say, 10 or 20% from when you purchased, just take that amount off and buy back in when you think it's in an oversold state.
For the record, I agree we'll see a short term pullback here, unless we don't in which we'll know that it's a trending market..... How's that for non-committal?
Long options are tricky because you can be right about the direction and still lose money because of time decay and you have to have some way of calculating whether an option is over priced or under priced relative to volatility.
I've experimented with options and still use them occasionally, but you are probably competing against some pretty astute players when you swim in that ocean.
Personally, I would just take your profits. If you're up say, 10 or 20% from when you purchased, just take that amount off and buy back in when you think it's in an oversold state.
For the record, I agree we'll see a short term pullback here, unless we don't in which we'll know that it's a trending market..... How's that for non-committal?
Re: Protecting open gains in Metals
I agree with the suggestion to just take some profits.
Anything you do is going to cost you. The question then is what costs the least for the most protection. I'll focus on monetary cost, but some of the strategies others have mentioned would cause me to lose sleep or worry about the behavior of the trade. That is also a cost, but hard to quantify.
If your gains are now such that it would really bother you to give them back, I would sell some, not all but some of the appreciated assets.
How much to sell... Enough so that the cost to sell and the cost to buy something else are small enough to be inconsequential. E.g. you shouldn't sell $100 worth, so if you only have $1000 you probably need to sell 1/2 of it or transaction costs just get silly. Of course if you have free trades then $100 transaction size suddenly does look reasonable.
But don't sell so much that what is left is silly small either. You do still want to keep some exposure for continued gains, right? If not, sell it all.
Did you double your money? Sell up to 1/2 (50%) but probably at least 25%. Might make sense to sell up to 2/3's if that would make the next investment more reasonable. But the more you sell, the less exposure you will have for future gains (or losses).
Up 30%? sell 15% to 30%.
See the pattern? I will typically sell enough to drop my position back to its original size, or maybe half of the gain if I want to continue to grow my exposure.
Or if it is a more permanent position I typically equal weight those holdings in an account. Sometimes I will have a position that is a multiple of the others (e.g. when holding CEF I give it 2x the weight since it is about 1/2 silver and 1/2 gold).
Or to make a more concrete example, I own some SilverWheaton (SLW). It is in an account with holdings like Proctor and Gamble (PG) and Johnson & Johnson (JNJ) and should be equal weight with them. On the run up from single digits to nearly $50 I sold 10%-20% of my SLW position several times to knock it down to about the same size as my other holdings in that account. Then it dropped down to $25 or so over the past year and I added about 15% to my holding to bring it up. That increased my "skin in the game" in that stock to the neighborhood of $3 per share, but I've been able to harvest gains and invest in other things and sleep well at night because I wasn't taking undue risk in any position.
BTW, remember TAX issues! Luckily my SLW (and TTM I've done similarly) is in a Roth. I hate having losers in a Roth, but it is ideal for winners.
Anything you do is going to cost you. The question then is what costs the least for the most protection. I'll focus on monetary cost, but some of the strategies others have mentioned would cause me to lose sleep or worry about the behavior of the trade. That is also a cost, but hard to quantify.
If your gains are now such that it would really bother you to give them back, I would sell some, not all but some of the appreciated assets.
How much to sell... Enough so that the cost to sell and the cost to buy something else are small enough to be inconsequential. E.g. you shouldn't sell $100 worth, so if you only have $1000 you probably need to sell 1/2 of it or transaction costs just get silly. Of course if you have free trades then $100 transaction size suddenly does look reasonable.
But don't sell so much that what is left is silly small either. You do still want to keep some exposure for continued gains, right? If not, sell it all.
Did you double your money? Sell up to 1/2 (50%) but probably at least 25%. Might make sense to sell up to 2/3's if that would make the next investment more reasonable. But the more you sell, the less exposure you will have for future gains (or losses).
Up 30%? sell 15% to 30%.
See the pattern? I will typically sell enough to drop my position back to its original size, or maybe half of the gain if I want to continue to grow my exposure.
Or if it is a more permanent position I typically equal weight those holdings in an account. Sometimes I will have a position that is a multiple of the others (e.g. when holding CEF I give it 2x the weight since it is about 1/2 silver and 1/2 gold).
Or to make a more concrete example, I own some SilverWheaton (SLW). It is in an account with holdings like Proctor and Gamble (PG) and Johnson & Johnson (JNJ) and should be equal weight with them. On the run up from single digits to nearly $50 I sold 10%-20% of my SLW position several times to knock it down to about the same size as my other holdings in that account. Then it dropped down to $25 or so over the past year and I added about 15% to my holding to bring it up. That increased my "skin in the game" in that stock to the neighborhood of $3 per share, but I've been able to harvest gains and invest in other things and sleep well at night because I wasn't taking undue risk in any position.
BTW, remember TAX issues! Luckily my SLW (and TTM I've done similarly) is in a Roth. I hate having losers in a Roth, but it is ideal for winners.