How Wide Should Your Strikes Be In A Credit Spread?

Got the following question this week:

First, thank you for providing a great service. I have been trading options for about a year and have learned a lot from your tips and alerts.

Now, I have a question about position sizing.  I am trading $100k of my funds using your alerts. When you send out an alert I multiply the number of contracts by 10 when putting on the trade. My question is: instead of just multiplying the contracts, can I use a combination of increasing the contracts and/or increasing the width of the strikes?

 

For example, if the alert was to sell 2 SPX 1200/1210 Calls, instead of selling 20 10 point spreads, could I sell 10 20 point spreads? What would be the pros/cons of doing something like this?

It seems to me, if I widen the strikes, then when I need to make an adjustment, I could sell the near strike and buy the next strike as opposed to rolling the whole spread. Is there any advantage to this other than lower commissions and (possibly) better fills? More risk? I feel like I am missing something or not really thinking the strategy all the way through.

Thanks,
Adam

My reply:

How Does Option Time Decay Work?

What is option time decay and how does it work in the context of stock options?  Option time decay is denoted by using the Greek word theta. Theta continues to be one of six indicators in option trading known as the Greeks. 

Options are a decaying asset. Option time decay is a feature of all options that basically means that an option will lose value as time goes on and it gets closer to expiration. So when you are looking to buy an option, the more time until expiration means the more the option will cost versus an option that has less time to expiration in which the underlying can move.

Theta specifically measures the sensitivity of an option’s value according to the passing of time.  Another way of saying this is that theta is the ratio of change in an option price according to the fleetingness of time before the expiration.  An easy way to remember this principle is to think of options as living assets that are wasting away as they age.  The value of an option naturally declines as time goes on.  If an option is fast-approaching the expiration date and is not ITM (In-The-Money) then its value will quickly decline, since it’s highly unlikely it will turn out to be profitable. 

Option time decay really starts to pick up speed in the last 30 days before expiration, assuming that the option isn’t already OTM or Out-of-The-Money).  How about options that are deep In-The-Money?  Ironically, in this case time value actually decays even more rapidly.  Why?  Probably because the market thinks these options are too expensive to hold especially when compared to other strike prices.  Therefore, holders of deep ITM options are wise to discount the time value (for a contract quickly approaching expiry) in order to attract new buyers.  The best way to remember this principle is this: the more certainty about an option’s expiry value you have, then the lower the time value is.  Likewise, the more uncertainty as to the option’s expiry value, then the greater the time value you get. 

This is an important part of choosing when and where to buy selling options.  Theta or option time decay is not precisely the same thing as Time Value, though they are related in thought.  The meaning to take home is basically that the time to expiration will have a major impact on the price of the option.  As the option comes closer to expiry then its chances of becoming more profitable are actually decreasing, and counting against it. 

Besides, predicting a stock price eventually becomes easier as every day passes and seems to resemble the last.  Therefore, it’s the time value that is decreasing as maturity approaches (and particularly so once past the 30 day mark). As the option ages, it loses what is called extrinsic value.

For an OTM contract, the option is made up of extrinsic value anyway, so understanding this time principle is paramount.

When trading options, the amount of time left for an option is what can make or break you. Look at a chart of a stock moving in an uptrend and you can tell it is going higher, but you cannot tell how high it will go and by when. If buying options, buy yourself enough time to be right on your bet.

When selling options, selling close to expiration limits your risk. The farther away from expiration you sell, the more premium you get but you do not get the quick decay benefits of option time decay until there are less than 40 days to expiration.

This is why I like to refer to selling options as “Selling Time”. As time passes, the options you have sold lose value. Making money while sitting around. Not a bad job if you can get it. And you can, if you sign up for my service.

Option Trading Books Reading List

What are Some Good Books on Option Selling?

What should you do if you are interesting in learning more about option selling?

The best way to get started is to read a few good books on the subject.

When I first got started I went to an expensive seminar. After two days I knew enough about options to be dangerous – to my myself. After trying to trade options based on what I had learned at the seminar I realized, after losing a lot of money, that there was more to it.

So I started researching books on options, videos online, websites, etc. Here are some of the best books I found on options and trading in general.

Options Books

One of the most advertised books is The Complete Guide to Options Selling: How Selling Options Can Lead to Stellar Returns in Bull and Bear Markets by James Cordier and Michael Gross. It goes into detail about option writing strategies that can improve your profit. It reviews all of the basic mechanics of selling options and profiting as well as strategies that are insider-quality, easy to follow, and that have a high-probability approach. The book is written to appeal to the new investor, not a mathematician. In this book you can look forward to learning why selling options is more profitable than buying, and specific strategies for selecting various types of markets. Keep in mind that this book is about futures options, not equity options.

One of the first books I got was Options As A Strategic Investment by Lawrence Mcmillan. I would say this is the “bible” of options books. Why? Because it is huge and covers all the basics of option trading and then some.

Most option books cover the basic strategies but they leave out when you should use these strategies and what to do when the trade goes bad. Very few books talk about adjusting trades. The best one I found that does is The Option Trader’s Handbook – Strategies and Trade Adjustments by George Jabbour and Philip Budwick.

My favorite book on Option Selling is Generate Thousands In Cash On Your Stocks Before Buying or Selling Them, by Samir Elias. I myself have only used a couple chapters of this book but it was a very interesting with good ideas.

Wall Street Money Machine by Wade Cook is also a good read. But read this book for motivation only. Most of the examples and numbers in this book were over exaggerated but still, I liked it and enjoyed it when I was starting out so you might too. Most of the book was on covered calls.

A couple other “should” read book on option volatility are Option Volatility and Pricing by Sheldon Natenberg, and The Volatility Edge in Options Trading by Jeff Augen. Both are technical and for advanced options traders.

Books On Trading

How To Trade In Stocks by Jesse Livermore is a must read. Livermore was the best stock trader of all time and his strategies are now copied by just about every firm on Wall Street.

Trade Your Way To Financial Freedom by Van Tharp is good to give you some basic guidelines on trading.

Trading For A Living by Alexander Elder is also very good. I have all of Elder’s books even though they focus a lot on technical investing, he does show how traders with different styles can all make money if they get the basics right.

Google (GOOG) Going to $600

A little over a year ago I went to one of those free trading seminars provided by companies that want you to sign up for their coaching or training.

The concept they were teaching was day trading and so it did not interest me very much, but a couple things the speaker said were very interesting. The guy’s name was Tom Busby.

He said that once a stock breaks a hundred $ level for the first time it zooms up 10%.  For example, once a stock breaks through $100 it is going to $110. When it breaks through $200 it is going to $220, etc.

I had heard this before somewhere so I started looking it up. It turns out that Jesse Livermore mentioned this in one of his books. Livermore was probably the best trader of all time.

So now with two reference points I decided this was something worthy of looking into. So I started doing some research.  It turns out, that this theory/rule is true.

I checked with over 40 companies that broke through either $100, $200, or $300 and  84% of then did eventually hit $110, $220, or $330. The average time it took was 4 months. Some did it much faster and the slowest took 8 months, but it got there.

One thing I noticed is that this does not work all the time. It works only in bull markets. And this was also a limited sample.

If this theory holds, then Google (GOOG) is poised to hit $660, and Apple (AAPL) is going to hit $220. As I write this, Apple (AAPL) is already above $209 so $220 is not much of a stretch.

How should you play this?

1. You can buy the stock and wait.

2. You can buy a call option on Google (GOOG) at 660 with at least 4 months of time left to expiration.

3. You can sell puts month after month until Google (GOOG) starts to decline.

All 3 methods have their pluses and minuses. I am already long the stock, and have sold the Jan 560/570 put spread. As long as the bull market stays intact, I can sell more puts.  When Google (GOOG) breaks below the 50 day moving average, I plan on selling my stock and looking for another company to play.

November 2009 Trade Results

Another positive month.

November gave us returns of +5.34%.

To me anything above 5% is a great month. Of course any month with a positive return is good, but 5% or above is better. 

November is usually a good month for option sellers because of all the extra holiday time. It is also close to the end of the year whan many traders and fund managers take extra time off, especially if they have had a good year. With the S&P being up over 20% so far this year, many managers are feeling pretty good about themselves. It doesn’t come close my yearly results of over 40% so far this year with one month left to go but, hey, let them be happy – it’s the holidays.

VIX at its lowest point of the year

Today the VIX, traded below 20 for the first time all year.

What does this mean? It means that the markets are calming down almost back to normal, that volatility is coming out, that wild price swings in the stock market won’t be so large, and that option premiums won’t be so juicy.

But overall, a low VIX is fine with me. I don’t like all the wild price swings.  A couple years ago there was a saying, when the VIX is high, time to buy. When the VIX is low, look out below.

When the market drops, VIX moves up and if it gets too low, the market will correct by dropping.

I don’t know how much lower it will go, but I feel it will stabilize somewhere in the area around 20. For the last couple months, it has traded between 20 and 30. A good trade has been to short the market when the VIX hits close to 20 and buy when it gets to 25. That trade might be over. But I do not expect to see it go much lower. That means the market might pull back this week.

Buffet Splitting His Class B Shares

Warren Buffett’s Berkshire Hathaway has set the date for a shareholders meeting related to its planned acquisition of Burlington Northern Santa Fe.

In a preliminary proxy statement filed this morning with the SEC, Berkshire gives notice that a special meeting of shareholders will be held at 9:30a on Wednesday, January 20, 2010, at Omaha’s Holland Performing Arts Center.     

Shareholders are being asked to approve a 50-for-1 split of Berkshire’s Class B shares, without splitting the higher-priced Class A shares.

That split would bring Class B shares down from about $3300 each (at today’s price) to roughly $66 each.

In an interview with CNBCjust after the Burlington deal was announced about a month ago, Buffett told us:

“I’m not big on stock splits. But by having this split, it enables anybody that has as little as one share of BNSF to opt for the tax-free exchange… So those small shareholders can have exactly the same availability that otherwise would only have been available to a big shareholder.”

So what?

Well in my opinion this is good news for option sellers. Why? Because Berkshire is a good stable stock. Not volatile and now well priced to sell options on. I am going to be keeping an eye on this one. Who knows? It might become on of my favorite stocks to do income strategies on. Time will tell.

Funny Stuff

How bad is the economy, really?
The economy is so bad that African television stations are showing ‘Sponsor an American Child’ commercials!

The economy is so bad, a picture is now only worth 200 words.

It’s so bad, Snoop Dogg had to start eating regular brownies. 

The economy is so bad, I saw the CEO of Wal-Mart shopping at Wal-Mart.

The economy is so bad, I went to my bank the other day and the teller handed me a note saying, “This is a robbery!”

The economy is so bad, George W. Bush appeared in a flight suit and declared economic recovery was complete.
The economy is so bad, Bill Gates had to switch to dial up.

The economy is so bad, Dick Cheney took his stockbroker hunting.

The economy is so bad, Dr. Seuss rose from the grave to write a new book: Green Eggs and Spam.

The economy is so bad that I went to my bank to get a loan, they said, “What a coincidence! That’s just what we were going to ask you!”
The economy is so bad, rapper 50 Cent had to change his name to 10 Cent.

The economy is so bad, Barack Obama changed his slogan to “Maybe We Can!”

The economy is so bad, my ATM gave me an IOU!

The economy is so bad that the highest-paying job in town is jury duty.

The economy is so bad I saw a man in Costco buying one roll of toilet paper.

The economy is so bad that I saw a van full of legal immigrants illegally crossing the border to Mexico.

The economy is so bad, I became a Pastafarian hoping that a meatball will appear to me.
The economy is so bad that parents in Bevery Hills are considering raising their own children.

The economy is so bad that even people who aren’t in Barack Obama’s cabinet aren’t paying taxes.

The economy is so bad I saw a polygamist with only one wife.

The economy is so bad that I saw someone using the sun to get a tan! 

The economy is so bad that wives are having sex with their husbands because they can’t afford batteries.

The economy is so bad, I saw four CEOs playing miniature golf.

The economy is so bad, Hot Wheels stock is trading higher than GM.

The economy is so bad, Obama met with three small businesses to discuss his Stimulus Plan: GM, Pfizer, and Citigroup.

It’s so bad, McDonalds is introducing the 1/4-Ouncer.

The economy’s so bad, Exxon-Mobil  laid off 25 Congressmen.

The economy is so bad, mothers in Ethiopia are telling their children, “Finish your meal! Don’t you know there are starving children in the US?”

The economy is so bad, that a prostitute asked me if she could borrow $20 until she can get back on her back.

It’s so bad, a stripper was killed when her audience showered her with rolls of pennies while she danced.

The economy is so bad, that Martha Stewart did a show on creative uses for food stamps.

The economy is so bad, Angelina Jolie adopted a child from America.

The economy is so bad, my sister had an exorcism but couldn’t afford to pay for it, and they re-possessed her!

The economy is so bad, that I bought a toaster oven and my free gift with purchase was a bank.

It’s so bad, I got a pre-declined credit card in the mail.

The economy is so bad, hobos in Beverly Hills now have to drink tap water.

The economy is so bad, Barack Obama unveiled his plan to close Guantanamo Bay for good: He’s turning it into a bank!

The economy is so bad, that the White House turkey turned down his Thanksgiving pardon– all his wealth was in stocks, and he has nothing to live for.

The economy is so bad, Sarah Palin is only shooting moose for food, not for fun.

It’s so bad, I ordered a burger at McDonalds and the kid behind the counter asked, “Can you afford fries with that?”

The economy is so bad, my niece told me she wants to dress up as a 401-K for Halloween so that she can turn invisible.

The economy is so bad, that instead of a coin toss at the beginning of the Super Bowl, they played “Rock, Paper, Scissors.”

The economy is so bad that Roy’s tigers are now eating him out of necessity.

The economy is so bad, the Treasure Island casino in Las Vegas is now managed by Somali pirates.

It’s so bad, they built an Indian reservation on a casino.

The economy is so bad, people are standing behind George Bush wherever he goes hoping for free shoes.

The economy is so bad, Michael Phelps has to share a bong.

The economy is so bad that when Bill and Hillary travel together, they now have to share a room.

The economy is so bad, a certain celebutante changed her name to “Paris Holiday Inn.”

The economy is so bad, Malia and Sasha Obama started a lemonade stand to raise money for bailouts.

It’s so bad, the Lone Ranger sold his silver bullets on Ebay.

The economy is so bad that 7 of 10 houses on Sesame Street are in foreclosure.

The economy is so bad that the only company hiring this week is the one that sends people to scrape bankers off the sidewalk on Wall Street.

It’s so bad, they renamed Wall Street “Wal-Mart Street.”

The economy is so bad, Angelina had to adopt a highway.

The US has made a new weapon that destroys people but keeps the building standing,. Its called the stock market – Jay Leno

. Do you have any idea how cheap stocks are ?? Wall Street is now being called Wal Mart Street – Jay Leno

3.. The difference between a pigeon and a London investment banker . The pigeon can still make a deposit on a BMW

4. What’s the difference between a guy who lost everything in Las Vegas and an investment banker ? -A tie

5. The problem with investment bank balance sheet is that on the left side nothing’s right and on the right side nothing’s left.

6. I want to warn people from Nigeria who might be watching our show, if you get any e mails from Washington asking for money, it’s a scam. Don’t fall for it – Jay Leno

7. Bush was asked about the credit crunch. He said it was his favourite candy bar – Jay Leno

8. The rescue bill was about 450 pages. President Bush’s copy is even thicker. They had to include pictures -Jay Leno

9. President Bush’s response was to meet some small business owners in San Antonio last week. The small business owners are General Motors, General Electric and Century 21. – Jay Leno

10. What worries me most about the credit crunch, is that if one of my cheques is returned stamped ‘insufficient funds’. I won’t know whether that refers to mine or the bank’s.

NEW STOCK MARKET TERMS

CEO –Chief Embezzlement Officer.

CFO — Corporate Fraud Officer.

BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry.

VALUE INVESTING — The art of buying low and selling lower.

P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.

BROKER — What my broker has made me.

STANDARD & POOR — Your life in a nutshell.

STOCK ANALYST — Idiot who just downgraded your stock.

STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves..

FINANCIAL PLANNER — A guy whose phone has been disconnected.

MARKET CORRECTION — The day after you buy stocks.
CASH FLOW– The movement your money makes as it disappears down the toilet.

YAHOO — What you yell after selling it to some poor sucker for $240 per share.

WINDOWS — What you jump out of when you’re the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a nuthouse.

PROFIT — An archaic word no longer in use.

Option Symbols Are Changing

The symbols used to trade options are changing soon. Here is how Fidelity explains the changes:

Options Symbology Initiative (OSI)

Background

Due to the significant growth of the option market, the Options Clearing Corporation (OCC) has enacted an industry-wide initiative known as the Options Symbology Initiative (OSI). Fidelity will be implementing changes during the weekend of January 23, 2010. The new options symbology will expand the current option series key, commonly referred to as the OPRA symbol, from a 5 character convention to a new key that accommodates up to 22 characters.

Benefits of the symbol change

• It will be easier to identify a contract’s underlying security, original expiration date, call or put, and strike price without the use of code-translation tables. It provides more flexibility than the OPRA symbols. The new convention allows for the addition of unique identifiers for new issuers, for the indication of expiration days other than the standard monthly expiration, and for adjusted contracts. It will also indicate more precise and varied strike prices.

How this change affects you

• The main impact to you as a Fidelity customer will be learning the new symbology. Below is a guide that explains this new symbology and the important dates that you need to know.
• Existing functionality in Fidelity.com and Active Trader Pro will not change. You will still get quotes, place trades and do your analysis in the same way you did before this change. The only difference is you will now use the new OSI symbol in place of the 5 character OPRA code. If you choose not to input the new OSI symbol you can use the option chain to bring up quotes, click to trade, or use the drop down menus for quick and easy point-and-click access.

For more in-depth information concerning the Option Symbology Initiative you can go to the following industry website: http://www.theocc.com/initiatives/symbology/default.jsp.

Proposed Timeline

To allow for a more orderly transition from old symbology to new symbology, the OCC will use a two-phased approach. Phase One, Conversion, will roll out elements of the new symbology. Phase Two, Consolidation, will introduce all aspects of the new convention and will complete the process.

Phase One weekend of January 23, 2010

Phase One involves converting the old OPRA-based symbology to the new OSI symbology and its 4 key fields: Option Root Symbol, Expiration Date, Call/Put Indicator and Strike Price.

For example:

The old symbol (OPRA) of -VMFAY for a Microsoft January 22, 2011 27.50 Call will be -VMF110122C27.5 as a new symbol (after Conversion).

Phase Two March 12, 2010 through May 14, 2010

Phase Two involves simplifying the root symbols. The multiple-option root symbols currently used to identify options will be replaced by the symbol of the underlying stock.

For example:

The new symbol (after Conversion) of – VMF110122C27.5 for a Microsoft January 22, 2011 27.50 Call will be -MSFT110122C27.5 as a final symbol (after Consolidation).

Below is a detailed look at the upcoming changes. Please carefully review the following symbol formats and timelines.

Phase 1: What is Conversion? weekend of January 23, 2010

It is the date that the OLD SYMBOLOGY becomes “inactive” and the NEW OSI SYMBOLOGY becomes “active” for all processes. At Fidelity we plan on switching to the new OSI format during the weekend of January 23, 2010. The first trading day you will see and use the new symbol format will be January 25, 2010. The industry mandated cutover date is February 12, 2010.

What does this mean for you?

Until the weekend of January 23, 2010 you will continue to get quotes and place orders under the current symbology. On January 25, 2010 you will get quotes, analyze options, and place orders using the new symbology.

Phase 2: What is Consolidation? March 12, 2010 through May 14, 2010

The second stage, Consolidation, will start March 12, 2010. Consolidation is the process of consolidating option symbols that share the same underlying symbol. In nearly all cases, the resulting symbol will be the same symbol as the underlying symbol being delivered. For example, all LEAPS, wraps, short dated symbols with an underlying of MSFT and their respective series will be converted to MSFT. Furthermore, the standard MSQ series will be converted to MSFT.

There are a few known exceptions to the consolidation strategy above. One is for previously adjusted options with non-standard terms of delivery. The strategy for consolidating these nonstandard options is to convert the symbol to the primary underlying appended by a single integer. The initial integer being appended will be the number “1”, and incremented for subsequent non-standard options. For example, MSZ is the result of a prior adjustment and has multiple deliverables with the primary deliverable being MSFT. When Microsoft options are consolidated, MSZ options would become MSFT1. The planned date for consolidation of non-standard or adjusted options is: March 12, 2010.

The goal of this approach is to have all classes consolidated prior to June 2010. Here is the schedule for consolidation. The dates below are the days the options will be trading under the consolidated and FINAL symbol.

Option Symbology Key

It is important to note that Fidelity.com, ActiveTrader Pro and OptionTrader Pro will continue to offer existing functionality in the same manner as you are currently accustomed. The only change will be the symbol used. Below is a detailed explanation of the current option symbology and the new option series key for both conversion and consolidation.

Current options series key:

The current option series key is comprised of 3 individual data elements (Underlying, Expiration Date, and Strike Price) that collectively can be used to fully qualify a unique option. The Expiration Month and Strike Price Indicator elements are currently derived from translation tables. You will continue to use the old symbology until the cutover during the weekend of January 23, 2010.

Here is an overview of the current OPRA code symbology:

For a Microsoft January 22, 2011 27.50 Call, the current symbol is -VMFAY, where the first one to three characters represent Contract Symbol (in this case VMF translates to MSFT), the next character represents Expiration Month, and the final character represents Strike Price Indicator.

New Option Symbol Format — after Phase 1 Conversion (weekend of January 23, 2009)

The new OSI symbol format contains 4 key fields: Underlying, Date, Call/Put Indicator and Strike Price. IMPORTANT! — These 4 fields are strung together with no spaces in between to create the new OSI symbol format. During conversion the “underlying” contract symbol will be the unique root symbol used to identify the underlying in the old symbology.

For example, Microsoft, under current symbology, has several different root codes to identify the underlying. Those identifiers or root codes (-MQF, -MSQ, -WMF and -VMF) will continue to be used to identify those specific options. After consolidation, all of the unique identifiers will be converted to MSFT and adjusted options will be identified with an appended integer.

Nature of the symbol change (OSI Symbol — Up to 22 characters) — the new options symbol format will include:

For a Microsoft January 22, 2011 27.50 Call, the Conversion Phase symbol is -VMF110122C27.5, where the first one to six characters with no trailing spaces represent Underlying (in this case VMF translates to MSFT), the next six characters represent Expiration (YYMMDD), the next character represents Call/Put Indicator, and the final characters represent Strike Price.

During Conversion, the root symbol of the contract will be the underlying identifier under old/current symbology. Date is a full numeric representation of the contract’s original expiration date (YYMMDD); for example, November 21, 2009 becomes 091121 and January 16, 2010 becomes 100116. For the Call/Put Indicator, “C” is used for Call; “P” is used for Put. Strike Price is a full numeric representation, including the decimal point with fraction up to three spaces (with no trailing zeroes); for example, 100.00 becomes 100, 27.50 becomes 27.5, 37.125 remains 37.125, and 52.50 becomes 52.5.

New Option Symbol Format — after Phase 2 Consolidation (begins March 12, 2010)

For a Microsoft January 22, 2011 27.50 Call, the Consolidated (final) symbol is -MSFT110122C27.5, where the first one to six characters with no trailing spaces represent Underlying and the remainder of the symbol is unchanged from Conversion Phase.

After Consolidation, the underlying identifier will convert to the stock symbol for the underlying; for example, MQF becomes MSFT, MSQ becomes MSFT, VMF becomes MSFT, and WMF becomes MSFT.

Adjusted options will be followed by an integer to indicate that the option is non-standard.

Adjusted Options

Adjusted options will be followed by an integer to indicate that the option is non-standard. This means it represents something other than the typical 100 share deliverable when an option is issued. The first adjustment will be designated by a number “1” after the underlying symbol. The second adjustment for the same option will be designated by a number “2” and so on, if applicable. See below for detailed information on the change.

Example: Microsoft goes through a 3/2 stock split:

• Old Symbology (Microsoft Jan. 22, 2011 25 Call — represents 150 shares): -MSZAE
• After Conversion (Microsoft Jan. 22, 2011 25 Call — represents 150 shares): -MSZ110122C25
• After Consolidation (Microsoft Jan. 22, 2011 25 Call — represents 150 shares): -MSFT1110122C25

Notice that after Consolidation the number “1” now follows MSFT. This additional designation indicates that this option has undergone an adjustment and is a non-standard option.

Note: A leading hyphen is used by Fidelity to identify the instrument as an option.

Examples and company trading symbols mentioned herein are provided for illustrative purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for the security.

Should You Be Buying Gold?

Is Gold a bubble or the trade of a lifetime?

Maybe both.

I have not been in the gold trade myself. But several of my members are, and doing very well so far.

Here is a chart provide by one such member. It shows that the stock of gold companies, miners, etc continue to appreciate evn though gold prices peaked earlier. If this hold true this time, even if gold has peaked, which it does not look like it has, the miners will continue to rally.

Last week a member emailed saying that it looked like GLD had topped out and would I consider selling calls. My answer: No Way.

This train still has momentum on its side as you can tell from the rally today. What I did do on Friday, was to buy a debit spread in GLD.

I bought the Jan 115 Calls and Sold the Jan 118 Calls. I paid about $100 per spread and am already up 17% today. Not bad, but I expect it to go higher and with Jan expiration I can wait for a couple more weeks to see what happens.

Where do you think Gold is headed?