3 Ways to Turn Metal Into Cash – GLD SLV JJC

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Precious metals are volatile in the best of times. Nowadays, the price swings for investors is like being attached to a tennis ball at Wimbledon. The swings can be rapid, violent and go in either direction. Then they can swing right back.

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Worse, however, is that before and after the financial crisis, there is no clear long-term direction for precious metals.

See, the great thing about stocks is that they have a long-term upward bias. Over time, stocks go up. Precious metals don’t. That’s why I don’t believe they have a place in a long-term diversified portfolio.

However, they are an option trader’s delight. All that volatility translates to high premiums. If a trade should go against you, chances are you can make back any loss the next month with a new trade.

So, here are some options plays for precious metals via their most heavily traded funds.

Precious Metals Plays: SPDR Gold Trust (ETF) (GLD)

Precious Metals Plays: SPDR Gold Trust (ETF) (GLD)The options play with precious metals are often determined, by me, based on technical analysis. The chart has gold at $1,227 per ounce, but it’s in a downtrend with support at $1,205, or about 2% below Wednesday’s close, and very strong support at $1160, another 4% lower.

That takes me over to the SPDR Gold Trust (ETF) (GLD), which closed at $117.10. So first support is at about $115, and next support is at about $110.

There are several choices here, depending on which way you think GLD will move. One approach would be to sell the Apr 22 $115 naked puts for $1.05. You get a 0.9% return for a 23-day holding period, and if GLD is put to you, you get it at an effective price of $113.95.

You could sell the Apr 22 $117 naked puts for $1.90. That gives you a 1.8% return for the same holding period, but if you think GLD is going higher, it won’t get put to you.

Precious Metals Plays: iShares Silver Trust (ETF) (SLV)

Precious Metals Plays: iShares Silver Trust (ETF) (SLV)Silver has been volatile too, but hasn’t joined the upswing that gold has enjoyed so far this year, up about 8% compared to about 16% for gold.

With the iShares Silver Trust (ETF) (SLV), you can play around with the price of silver in many ways.

SLV closed at $14.50 on Wednesday, and it recently had an important bullish development as the 50-day moving average moved above the 200-day MA. Support is at $14.36 and $14.24, so it’s roughly equivalent.

It may not seem like much, but selling the Apr 29 $14.50 naked puts for 40 cents each does translate to a 3% yield, or 36% annualized. If the stock gets put to you, you get it at an effective price of $14.10.

You may want to consider buying SLV and selling the Apr 29 $14.50 covered calls. They are selling for about 40 cents each also, giving you that same return.

Precious Metals Plays: iPath Bloomberg Copper Subindex Total Return Sub-Index ETN (JJC)

Precious Metals Plays: iPath Bloomberg Copper Subindex Total Return Sub-Index ETN (JJC)Most people don’t consider copper to be one of the precious metals, and it really isn’t. However, its volatility places it firmly in the camp of options plays. You can even invest in copper via the iPath Bloomberg Copper Subindex Total Return Sub-Index ETN (JJC). The JJC closed at $25.30 on Wednesday.

I happen to think that copper may have seen a bottom, based on a number of macroeconomic and technical factors. Support is at $24.60.

But as a note: JJC doesn’t have weekly expiration dates like the precious metals, and it doesn’t even have all the monthly choices sometimes.

The Jun $25 naked puts are selling for 70 cents. That’s about a 2.8% return for a 105-day holding period, or about 10% annualized return. There’s also a 30-cent buffer before it would even be triggered and potentially put to you. On the other side are the Jun 15 $26 covered calls on JJC. Those are selling for 85 cents, or a 3.3% return — and if called away, you also get 70 cents in capital gains per contract.

The nominal return is the same, but if called away, you also get 70 cents in capital gains per contract.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com. As of this writing, he was long JJC.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/precious-metals-gld-slv-jjc-options/.

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