Printable View
As an exercise, here is the case study for your review with GDX. Tip: The cluster strengths here are much different than with IWM!
First Resistance Cluster: 57.213:58.726 Strength: 26
Second Resistance Cluster: 58.891:59.876 Strength: 9
First Support Cluster: 56.983:55.853 Strength: 5
Second Support Cluster: 55.336:54.076 Strength: 21
Billy,
Perhaps I should ask this in another thread, but I was wondering if you could share your thoughts on 'time to expiration' for buying options positions on primary robot trades?
Understanding the risks of trading options, at some point the GDX robot will turn to a short mode, where one would consider GDX puts. As you have pointed out the ETFs for GDX are not that great. When GDX robot signals a short, an opinion now, would give me time to contemplate your answer.
The seasonality for gold and gold stocks historically is end of July to year end. Last year was a great trade. I will be very interested to see if the GDX robot signals a short in the next couple of months, but everything for seasonality for the past several months seems to have been exactly two months early. That would imply the GDX robot is in for a long profitable trade. I was thinking of adding to my GDX position, but my experience tells me June and July can be wild months for gold.
Both GDX and IWM offer weekly option expiry, so lots of choice. TZA and TNA monthy. I know this is a personal preference, but given the fact that most of the option time premium evaporates in the three months, prior to expiration, and given your knowledge of the robots, would you be able to share any thoughts?
Your answer might also help in a possible pending IWM robot long position if June unfolds in a bullish way.
I consider you, Pascal, and this board the best I’ve come across in many years in the market. I don’t want to intrude, occupying your time answering too many obscure questions. Perhaps this question qualifies as obscure. Please let me know.
Dave
Dave,
The robot models were built only for considering direct trades of the underlying.
In options, realized and implied volatility makes all the difference.
The models may be directional, but we may be directionally correct and still volatility can kill us if we are badly timed to it.
About your point on "most of the premium evaporating in the first three weeks" -
Premium evaporates in relation to the risk involved.
The options market (read: the pros) in general price things well.
So any options strategy making use of the robots should primarily be an options strategy that:
(a) you believe has merit from an options perspective first and foremost and does not use options just as a means of leveraging a stock trade.
(b) can use the directionality of the robots as a hint (in this respect I would assume it would be, at least partially, a directional trade).
If you're indeed interested in leverage via options, the way is to go with deep-in-the-money options, which behave pretty much like the underlying (but still cost more to enter and exit due to the larger spread).
These and more are described in Jeff Augen's excellent books which you can look up in Amazon:
[URL]http://www.amazon.com/Volatility-Edge-Options-Trading-Strategies/dp/0132354691[/URL]
As regards non-directional trades - Condors- the reference work has been written recently by Michael Benklifa, who is also a member here in the forums:
[URL]http://www.amazon.com/Profiting-Iron-Condor-Options-Strategies/dp/0137085516[/URL]
Best,
Thanassis (site admin)
[QUOTE=davidallison@shaw.ca;12843]Billy,
Perhaps I should ask this in another thread, but I was wondering if you could share your thoughts on 'time to expiration' for buying options positions on primary robot trades?
Understanding the risks of trading options, at some point the GDX robot will turn to a short mode, where one would consider GDX puts. As you have pointed out the ETFs for GDX are not that great. When GDX robot signals a short, an opinion now, would give me time to contemplate your answer.
The seasonality for gold and gold stocks historically is end of July to year end. Last year was a great trade. I will be very interested to see if the GDX robot signals a short in the next couple of months, but everything for seasonality for the past several months seems to have been exactly two months early. That would imply the GDX robot is in for a long profitable trade. I was thinking of adding to my GDX position, but my experience tells me June and July can be wild months for gold.
Both GDX and IWM offer weekly option expiry, so lots of choice. TZA and TNA monthy. I know this is a personal preference, but given the fact that most of the option time premium evaporates in the three months, prior to expiration, and given your knowledge of the robots, would you be able to share any thoughts?
Your answer might also help in a possible pending IWM robot long position if June unfolds in a bullish way.
I consider you, Pascal, and this board the best I’ve come across in many years in the market. I don’t want to intrude, occupying your time answering too many obscure questions. Perhaps this question qualifies as obscure. Please let me know.
Dave[/QUOTE]
Hi Dave,
This is a very good question. I'll probably need more time, but there are several aspect of the signal that must be researched:
1. The signal strength is probably the most important key to invest using options. A very strong signal on GDX only occurs a few times each year...
2. Trade duration is probably also linked to the signal strength. I should research that aspect. Three months options should be long enough though, since a trade usually closes before that.
The main issue is with softer signals, which is what most signals are. Since these signals could easily backfire, an option trade will quickly move very negatively and hence should probably be avoided, except if you only invest only the total amount of the loss you are ready to take in the trade.
I do not believe that we will have successful short signals in the next few weeks, because the volatility on GDX is too low and most good short trades have been coming with much higher volatility... GDX is a very "emotional" ETF. We will however get weak short signals that will reverse within days.
Pascal
Pascal / (Thanassis)
Thank you for your response. Historically for me, June and early July have not been kind to my gold longs. So I watch with great interest the GDX robot signals. Thanks again.
Dave