Market Conditions, Gold ETFs, and the 3 Required Skills for Option Selling

02/19/2016 9:24 am EST

Focus: OPTIONS

Alan Ellman

President, The Blue Collar Investor Corp.

Current market conditions have been challenging (yet manageable) to those who have achieved the three required skills for option selling, so Alan Ellman of TheBlueCollarInvestor.comhighlights three gold ETFs and their associated implied volatility he’s found well suited for his current portfolios and the most appropriate strike prices to use.

Lately, I’ve been writing about selling options in bear markets. No surprise here as the market is down about 10% in the past three months. This, of course, is challenging for all investors but manageable to those who have achieved the three required skills for option selling (stock selection, option selection, and position management). Market conditions will dictate and give direction as to the type of securities best suited for our current portfolios and the most appropriate strike prices to use.

In the past several weeks we have seen the re-appearance of gold exchange-traded funds (ETFs) onto our Premium ETF Reports. Even in bear and volatile markets, there are always securities that perform well and it is imperative for blue collar investors to locate these underlyings.

Gold ETFs and Implied Volatility

Here are the three gold ETFs and their associated implied volatility that earned their way onto our Premium ETF Watch List on 2/10/2016:


Performance chart of Gold ETFs compared to the S&P 500 (SPX) (3-month chart):

chart
Click to Enlarge

With the S&P 500 down about 10% over the past three months, the gold ETFs were up between 10% and 27%. The overall implied volatility of the S&P 500 at the time was 24.14. Before even checking option chains we know that GDX and GDXJ are much more volatile and therefore riskier than GLD. They also should generate higher premiums than GLD. Since we are presuming a bear market environment, I selected only in-the-money strike prices. To see the remaining chart and read the entire article, click here…

By Alan Ellman of TheBlueCollarInvestor.com

Related Articles on OPTIONS