Options-Picking The Equity

February 26th, 2012
in gold, miners, options

options-signIn my last article, Options Have Leverage, I showed you how to make the odds of your trade more favorable.  By selling short term options I believe your chances of success are greatly enhanced.  First you must decide which stock or ETF you want to use.  I am a firm believer in benefits of trading in gold, silver and commodities and have been trading them most of my adult life.  I like Market Vectors Gold Miners GDX the best for frequent trades.

Here are the reasons why I choose GDX:

1. It has great liquidity.  The open interest and daily trades have large volumns which makes it easy to get in and out of the trade.  This is very important because even if you make a great trade, if you can't get out of it without losing a large part of your profit in the bid-ask closing you will not do well.  This has happened to me and I vowed never to let it happen again.

2.  I want to be able to trade in one dollar incriments.  Picking a good strike price is very important.

3. I want a one week trade available.  GDX has an 8 day trade that comes out every Thursday.  This gives you the very end of the decay cycle.

You can see from the Yahoo chart for GDX that it can be volatile, but the ETF ended the year just about where it started.  Buy and hold may not have produced much for GDX investors over the full year but the high volatility gave traders many opportunities to make money.

Click on graph for larger image.

In my next post I will show you one of my favorite trades using GDX.

Written by Goldfinger

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