TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES. 

OPTIONS PLAY: COMEX GOLD AND THE EURO ZONE

The COMEX GOLD market like many markets here in the U.S., are impacted by the sovereign debt issues in Europe.

MY ANALYSIS

Fundamentally, recently the Comex Gold market has been the beneficiary of a falling U.S. Dollar Index. Typically and historically the Comex Gold Futures market has an inverse relationship with the U.S. Dollar Index futures market. When the USD rallies or falls, the Gold market tends to move in the opposite direction. The U.S. Dollar Index Futures topped out recently back on January 13th at 82.04 and since then it's been in a strong downward trend and made a new low for the move on January 27th at 78.89. On December 29, 2011, Comex Gold Futures were trading at a low of $1,523/ounce which was the bottom of the recent rally. Since then, Comex Gold rallied to a high for the move of $1,739/ounce on January 27th. That is a $216 per ounce move in about 1 month. That is extremely notable  when you take into consideration the leverage that is involved in trading futures. The contract size for gold futures is 100 troy ounces. That means that every $10 per ounce move in the futures price or in an option premium, is equal to a $1,000 change in contract value. So the $216 per ounce price movement over the last month equated to a $21,600 change in contract value.  Remember that leverage can work for you and against you AND that futures and options do not move in tandem. The CFTC defines Leverage as "the ability to control large dollar amounts of a commodity or security with a comparatively small amount of capital. I am of the opinion that one of the reasons that the Gold market made a run like this is because the U.S. Dollar index fell so much. I also believe that the reason the USD made this kind of move is because the Euro currency futures rallied. It's the Euro that's been pushing around the markets in my view. As the euro Zone has problems the Euro Currency falls and the USD moves higher. This is not because things are going so well in with the Dollar, it's that things are so bad with the Euro. So the USD is winning or losing by default and of course Gold reacts to the Dollar.

Then there is this new idea of Gold being a risky investment and with the sovereign debt issues in Europe there has been much talk of the "risk-on" and "risk-off" trade. Gold has tended to move higher when things are "okay" in Europe and appears to  fall when things are not going well in Europe. So the trend recently has been that when the Euro Currency is slumping because of the problems with Greece for example, then the USD rallies and the "risk-off" trade is on and Gold prices tend to fall. The opposite dynamic is that when issues settle down in Europe and things are going okay then the Euro rallies, the USD falls and the "risk-on" trade is on and Gold moves higher. This whole idea of Gold going up when the "risk-on" trade is on is very hard for me to get used to. I've been a Broker trading Gold Options for about 15 years and Gold has almost always seemed to me, a safe haven trade or a flight to quality trade. Also Gold, in the past has had the reputation of moving higher when there is economic uncertainty or fear. Well if that were now the case it seem obvious to me that Gold should have moved higher if there is fear and worry about the sovereign debt issues in the Euro Zone. That's not the case. So an old school guy like myself has to get used to the idea of Gold being traded as a riskier asset class. In the end I believe the trend higher in Gold will continue over the coming days and weeks and I will be presenting option trade ideas to my clients in the Comex gold market, but rest assured I'll be watching the Euro and the USD every step of the way. Also I recommend to my clients a certain strategy with options with the objective of providing a degree of protection in the event of a major move lower in Gold.

Technically, I see the Comex Gold Futures market still in a SUPER-TREND higher as the market trades above both the 9 day SIMPLE MOVING AVERAGE and the 20 day SIMPLE MOVING AVERAGE as the indicators both point higher on sharp angles. Another important technical in my opinion would be the new high for the move that Gold made here on the last day of the chart. This particular move started started back on December 29th when the market bottomed at $1523/ounce. Notice on a daily chart that each bar represents a day. Finally this is also the highest price for Gold since back on December 8th. See daily chart below.

Additional charts, studies, and commentary can be found at:  http://markethead.coM/2.0/free_trial.asp?rid=McKinney

OPTIONS PLAY

A potential play here could be to buy April Gold Bull Call Spreads or April Calls. Another potential play could be to sell deep out of the money puts to collect premium. Either play does involve substantail risk and is not suitable for everyone. When we buy Call Spreads or Calls we also buy in a 3 to 1 ratio, a Put to help protect us against a MAJOR correction in the market. For the details on strike prices, expiration dates, size, and exact risk please contact me at mmckinney@zaner.com or phone me direct at 312-277-0115.

WE ARE ALSO FOCUSING ON COMMODITY OPTIONS IN U.S. 30 YEAR TREASURY BONDS, GOLD, OIL,

GRAINS, SOFTS, and INDICES.  

To see my track record and other past recommendations click here: http://mmckinneyfutures.com/   

FREE QUOTE- "Be quick, but never hurry." -Legendary UCLA Basketball Coach, John Wooden

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION