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Watch the Bullion/Buck Spread Snap Like a Twig (UUP/GDX)

Posted on April 16, 2020

We’re going to keep this one short, sharp and straight to the point.

But before we get there – we hope everyone had a wonderful Passover holiday, capped off with a harmonic rendition of the Shirat HaYam.

May the enemies of the Jewish people know only suffering and devastation, while those who bless us receive an abundance of blessings…

This week’s trade is a mid-term bet on the direction of gold vis-à-vis the dollar.

With dollar strength in the cards for the short term, due to an ongoing safe-haven lust for the greenback, we’re expecting DXY to strengthen toward a retest of her recent high at 103.

But Covid-19, Matty – how could it be…?

Unless and until we see a meaningful reversal in the rate of both Wuhan virus morbidity and mortality in Europe and Japan, dollar strength is with us.

Beyond that, it’s clear that Europe’s economy will underperform the U.S. this year, and likely Japan, too, though betting on two drunks running a 100 meter dash in wet boots is anything but a wise wager.

Gold has seen some wild erratica over the last month, along with her evil step-sister, silver, and the miners.

Her latest push to new highs has come on the back of an unprecedented government stimulus package and the fear it’s engendering that the economic edifice is about to crack.

On top of that, we have a supply shock on the entire mining front – temporary though it may be – that’s seen a great many mines shuttered due to corona contagion fears.

Cracks in the Dam!

Altogether, what’s been created is a trading anomaly that has both assets rising more-or-less in tandem – a correlation that never grows too long in the tooth.

But where it’s most striking is in the movement of the dollar vs

And one final note.

Many of you have inquired whether you can make pro rata upgrades on your subscriptions, and the answer is a full throated you-betcha ‘yes’.

You will be credited proportionally on what you’ve already paid when the new billing cycle is established.

Please feel free to write us if you need further clarification.

And many happy returns!

Matt McAbby

7 responses to “Watch the Bullion/Buck Spread Snap Like a Twig (UUP/GDX)”

  1. Daniel Farberoff says:

    Brand new here, want to get in in this one, what do you mean sell short ‘one lot’? Also for UUP calls I only find 19th of June. Also prices have changed a bit with the trading, how do I figure out new credit or debit and if still profitable?

  2. Daniel Farberoff says:

    Ok, I figured out the the credit debit part, but still curious if UUP date may have been a typo?

  3. Daniel Farberoff says:

    Ok, I figured it all out. The june call for $26. Please disregard all previous comments! Best of British luck to all of us!

  4. Matt McAbby says:

    Best of luck to you ,Daniel.
    And good to have you on board.
    Shorting one lot means 100 shares.
    Make sure you sell a single PUT for every 100 shares shorted, too — otherwise you won’t be fully hedged.
    Prices have moved, but not radically so, as we see them presently, so the trade could still be executed profitably.
    We also can’t give you firm answers on the debit/credit as everything’s fluid.
    Your credit is the share price plus the price of the short PUT less the cost of the long CALLs.
    Make sure you select the options closest to-the-money.
    And keep us posted!
    Take care,
    Matt

  5. Greg says:

    Hi Matt and thank you for the trade idea.
    I had trouble with Td Ameritrade on the FAS/XLF trade. I had it all set but then they rejected the selling of the XLF. I ended up just keeping FAS and made 60%. Margin issue perhaps which should be solved now, or I executed incorrectly.
    1. With this UUP trade could you please clarify the difference with selling a stock vs selling short a stock? (XLF was sell and this is sell short)
    2. Do I need to try to execute all three moves together with conditionals or can it be three separate trades one right after another? (wondering if the order of the trades affects the status of a naked short or hedge for example)
    3. Just taking the UUP calls would be same profit potential but with more risk (entire cost of options) and more invested correct?

    Looking forward to the new Guide to Trade Tactics coming out to further my education!

    Sincerely, Greg

  6. Matt McAbby says:

    Hiya Greg,
    Can’t explain why they wouldn’t let you load the short. Did you speak with a rep? It should be understood by all to be a clean (full) hedge.
    1. ‘Short sale’ and ‘sale of the stock’ was intended to be the same thing — sorry for the confusion. Should have said sell ‘short’.
    2. Again, TD is the best address for this question. A rep will understand what you’re attempting and should be able to provide you with proper guidance. Let them know what you want to accomplish (a fully hedged position to generate a credit). You can play with the order, sure, but TD may have policies that you should first apprise yourself of.
    3. Exactly right.
    Congrats on the take, bro! 60% in a few days is nothing to scoff at!
    All the best,
    Matty

    • Greg says:

      Hi, and thanks so much for the help.
      Should I consider any stops on this trade like what went out from Alan this morning on the other trade?
      Maximum loss on the trade is $0.16 means $160?
      What’s the math please to get to .16?
      My fills were obviously different and I ended up with a 30.74 credit. Is higher credit always better?
      1.14 x 3
      31.01 x 100
      3.15
      I’m getting all the blanks filled in my mind and comfortable knowing and understanding these trades! Thanks again for the time and patience with questions. Its very much appreciated.
      – Greg

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