Gold can pay you Income

Gold has been one if not the best investment in the 21st Century, Yet it probably has more naysayers then any other investment on Earth---outside of investing with Bernie Madoff. The big knock on Gold is that it only works if nothing else works,that only doomsday people with doomsday scenarios own it ,and its just a chunk of useless metal that does not pay a dividend. Well as we know, many of the worlds leading hedge fund managers are buying Gold and it will soon be an investment that probably everyone will own soon one day.

I'm starting this blog to share with you a simple strategy for playing the GLD ETF has an income producing entity.
This is a bullish strategy and you have to be prepared and liquid enough to own up to 5,000 shares of GLD. (Around 500,000) In my next post, I will share the strategy and the transactions I make. The strategy entails buying upfront 1,000 shares of GLD. The next piece is to sell 10 calls and to sell 10 puts. With the volatility in Gold, the premiums are high in just the 1 month out options. Today Feb.19th GLD is at 109 and you can capture $3.00 on both the calls and puts. Since GLD trades about $1.00 for every $10.00 that Gold trades for. That gives you $60.00 downside protection before you are forced to buy another 1,000 shares of GLD. This is important if Gold tanked $100 in one day (which it is capable of doing) you are going to own 200o shares of GLD in this scenario at 109....$218,000. You would have gotten back $6,000 in premium and thus your cost basis is $212,000. The value of your position at this point would be negative profit as your mark to market with GLD at 99 would be $196,000 ( a loss of $16,000) This is contrary to our income producing Gold play here but YOU have to bullish on Gold to get invested here. If your Bullish on Gold and you get a $100 drop, we have a new entry point at a much cheaper price. If this happens, I'll buy another 1000 shares and do my sell call/sell put strategy with just 2000 shares. My cost basis on the 3000 shares now will be 105 1/2
I will then do the same strategy again and probably take in 12,000 for April. I'm taking in 12,000 because my position now is double. The extra 1000 buy is a pure long play as even though I got burned on the downside, it is a disciplined way to get back into it. Remember I'm now buying Gold here under 1000 dollars. So heres the scenario--- Its March 17th. Gold dropped a 100 bucks on me in this scenario and I'm starting all over again for April.
1.) I have bought 3000 shares.
2000 at 109 and 1000 at 99
2.) I have brought in income of $6,000 for March and I'm bringing in $12,000 for April
3.) I'm long 1,000 shares of GLD and I have 2000 shares in the Sell Calls/Sell puts strategy.
4.) My cost basis for 3000 shares is now 99

If Gold bounces back to 1050. I have 2000 shares called away and I'm long 1000 shares. Gold at 1050 puts GLD at 103.
So on April 17th, I'm long 1000 shares of GLD at 103 with a cost basis of 99. I've made 4000 bucks on GLD and I had a volatile 2 months. I start the whole process over again.

Ok..since we outlined this with the worst case. Lets continue. Say Gold drops another 100 bucks before April 17th. This would be Gold trading under 900. Lets say 890. GLD would be 88. This would be 22 points from where we started. You would be put 2000 shares at 99, 1000 shares at 109 and you bought your original postion of 1000 at 109 and your second postion at 109. You now own 5000 shares of GLD at 88 which is $440,000. You have invested $497,000. You now have a loss of $57,000 and are long 5000 shares of GLD. If this happens....Fuck It. I now have a great position in Gold under 1000 bucks and I play it long until it gets back over 1000. Just remember If Gold trades higher after you make your positon,flat,or less then 60 bucks lower on the downside, you make money in all these scenarios. I will detail in my next post.