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Two Way Straddle in the Precious Metals – A New Angle (GLD/WPM)

Posted on June 23, 2020

We’re moving into new territory for today’s trade, to employ a strategy that offers tremendous opportunity moving forward in three month time frames.

It’s a technique we don’t see employed anywhere else, but please apprise us of other services that are offering similar plays.  We don’t want to insinuate ourselves as cutting-edge creative machers when we’re actually nothing but copycats.

 

We’re also coming at you early this week because the set-up appears too good to be true.

So here goes.

We see tremendous opportunities playing a long-short straddle strategy with stocks whose prices are widely divergent, and whose ‘betas’ are also strongly contrasting.

Any Thoughts?

We’ll get into the nuts and bolts as we lay out the trade, but please be in touch with us with your ideas on the approach, as our back-testing and modeling over the past three months may have missed something.  We’ve been blessed with an intelligent readership, and we value your feedback.  If you see a wrinkle that we may have overlooked, or some potential for improvement in the system, let us know.

We return to the precious metals today, because we want to exploit a pattern that obtains between two highly liquid securities that allows us to execute our strategy effectively.

The stocks are Wheaton Precious Metals Corp. (NYSE:WPM), a royalty streaming operator in the gold space, and the SPDR Gold Shares ETF (NYSE:GLD), with whom you likely have a long acquaintance.

It’s the nature of outfits like Wheaton to swing wildly around the gold price, and that’s why we’ve selected it for the trade.

Take a look here at WPM pegged against GLD since the beginning of the year –

It’s not even close.  Every jot on GLD begets a tittle the size of Bozeman on WPM.

And because the current environment makes it difficult to discern

Many happy returns,

Matt McAbby

 

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