As we slog through the summer quiet period, this week I took the logical action one would take during the summer quiet period: I covered up. More specifically, I did covered writes on my blue chip precious metals stocks.
We are about a month away from June options expiration, so this far out the premiums are decent, so I was able to sell out of the money calls for a decent price. If the price of gold and silver continue in a relatively narrow trading range, or only edge up slightly, the options will expire worthless, and I pocket the premium.
Is that likely to happen?
I have no idea, but I do know that not much has happened year to date.
For example, the DOW is up a grand total of 0.18% year to date. That’s basically flat on the year. The S&P 500 has performed slightly better, up 2.86% on the year, but gone are the heady QE induced rallies of days gone by. It would appear that you can only print so much money, and eventually even a fast car runs out of gas.
That’s an inept analogy. A better one would be that you can only put so much gas in a gas tank. Eventually the gas pours out of the tank. Either way, a car has a set maximum speed, and all of the gas in the world won’t make the car go any faster.
And that’s where we are today. We’ve already filled the tank to over-flowing, and we’ve upgraded to premium gas, and then ultra gas, to get as much speed as possible. Alas, we are approaching terminal velocity, and so there’s not much faster we can go. This may be it.
Which may be why the price of gold is up 7.53% year to date. Not exactly a raging bull market after the two year pullback, but it’s out performing the broader markets, which may tell you something.
Oil is up 5.99% year to date, which also may be telling you something about inflation, and the economy in general.
Unless I’m mistaken, higher energy prices do not help the overall economy. If it costs employees more to get to work, they have less money to spend. If it costs more to transport goods to market, prices go up, and we have less to spend. Those are signs of a coming recession.
Or not. Perhaps the money printing can find an even higher gear, and everything will be fine.
But I’m not betting on it.
Thanks for reading; see you next week.
Covering Up
by JDH on May 24, 2014
As we slog through the summer quiet period, this week I took the logical action one would take during the summer quiet period: I covered up. More specifically, I did covered writes on my blue chip precious metals stocks.
We are about a month away from June options expiration, so this far out the premiums are decent, so I was able to sell out of the money calls for a decent price. If the price of gold and silver continue in a relatively narrow trading range, or only edge up slightly, the options will expire worthless, and I pocket the premium.
Is that likely to happen?
I have no idea, but I do know that not much has happened year to date.
For example, the DOW is up a grand total of 0.18% year to date. That’s basically flat on the year. The S&P 500 has performed slightly better, up 2.86% on the year, but gone are the heady QE induced rallies of days gone by. It would appear that you can only print so much money, and eventually even a fast car runs out of gas.
That’s an inept analogy. A better one would be that you can only put so much gas in a gas tank. Eventually the gas pours out of the tank. Either way, a car has a set maximum speed, and all of the gas in the world won’t make the car go any faster.
And that’s where we are today. We’ve already filled the tank to over-flowing, and we’ve upgraded to premium gas, and then ultra gas, to get as much speed as possible. Alas, we are approaching terminal velocity, and so there’s not much faster we can go. This may be it.
Which may be why the price of gold is up 7.53% year to date. Not exactly a raging bull market after the two year pullback, but it’s out performing the broader markets, which may tell you something.
Oil is up 5.99% year to date, which also may be telling you something about inflation, and the economy in general.
Unless I’m mistaken, higher energy prices do not help the overall economy. If it costs employees more to get to work, they have less money to spend. If it costs more to transport goods to market, prices go up, and we have less to spend. Those are signs of a coming recession.
Or not. Perhaps the money printing can find an even higher gear, and everything will be fine.
But I’m not betting on it.
Thanks for reading; see you next week.