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LEAPS Option Strategies
The Smart Profits Report: Issue #165
Monday, December 6, 2004
LEAPS Option Strategies: A Gold Strategy That Beats Stocks, Bullion or Coins…
By Karim Rahemtulla
Investment Director, Mt. Vernon Research
Like gold? Then read this… Back in January of this year I made a recommendation to the readers of the Daily Reckoning.
Knowing that the readership was quite fond of precious metals investing, I showed them an alternative way to profit from gold while taking 90% of monetary risk off the table.
It was partly based on a recommendation I made to my readers. I can tell you about this now, because it worked like a charm, proving that the LEAPS option strategies we used was considerably more effective than buying a gold stock… or physical gold bullion… or rare coins.
Let me explain…
Securing 291% Returns With LEAPS Options Strategies
The participants in my LEAPS service closed out a position in Placer Dome a few days ago for a return of 291% in less than 12 months.
We did this using LEAPS options and a bull spread. We basically bet that the price of Placer was going higher, and instead of buying the shares for $17 we bought the LEAPS option with almost two years of time value for about $2 or so.
Let me ask you a question… If you wanted to buy gold because you thought it was going much higher, what would you rather do: invest $17,000 to make $5,000 or invest $1,800 (about 10%) to make $5,100?
Well, if your answer is $17,000 to make $5,000 then you can stop reading right now!
The beauty of options is that if you know what to do, when to do it and why to do it, you can walk away a very wealthy person in a very short period of time. Right now you have a choice: If you are interested in investing in gold because you are convinced that it is going to $500 or $600 in the next couple of years, then you need to look at the LEAPS available on gold stocks.
Four Major Gold Producers With LEAPS Options
There are four major gold producers that have LEAPS options:
- Newmont (NYSE: NEM)
- Barrick (NYSE: ABX)
- AngloGold Ashanti (NYSE: AU)
- Placer Dome (NYSE: PDG)
If the price of gold were to hit $500 per ounce, all of the above companies - except for ABX - would move between 50% and 100% in price.
Any in-the-money LEAPS purchased would increase between 300% and 700% - if this were to happen over the next two years.
If gold were to hit $600, you would be talking about 1,000% to 1,500% returns across the board with LEAPS… and with only 10% to 20% invested versus buying the shares outright. In fact, at $500 per ounce the actual dollar profits from the LEAPS would even exceed the dollar profits from the stock investment.
So LEAPS are not just one of the smartest ways I know of buying any stock - this might be the best way to play the ongoing bull market in gold, too.
Good Trading,
Karim Rahemtulla
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Today’s Smart Profits Cribsheet
- In our Placer Dome play mentioned in today’s article, we used a “bull spread” strategy. I talk more about this powerful options-trading tool in Smart Profits #151, Understanding Bull Spreads: Make 1,000% or More by “Spreading” the Wealth
- If you’re new to the world of options trading, all the terminology can get a bit confusing for example, do you know what a call option is? To help clarify the lingo for you, feel free to vist the Smart Profits Glossary to find definitions of terms like “LEAPS” or “bull spread” found in today’s article.
- For more information about gold visit The Investment U E-Letter’s: Is Gold’s Run Done? No…
Related Articles:
- Smart Option Trading: Four Critical Truths
- Basic Trading Rules: The Four Rules of All “Smart Money”
- Using LEAPS: These Options Are Set to Run Full Tilt
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