Today I sold my Gold put option that I bought for 49,66 USD/oz on August 23 2011. I sold it for 151,43 USD/oz, or a profit of 205% on my invested capital.

The gold put option was a position in my trading account. A speculative play that I make with less than 10% of my total trading account size. I use put options when I detect a parabolic rise of an asset. The options limit the possible loss if I’m wrong, but they also offer me opportunity to leverage my trade. I always buy out of-the-money options, so I pay cheap premium for the option. As after parabolic rise, I do expect huge correction, I prefer to buy cheap out-of-the options and risk less capital for a high return, if I’m right. I also buy the options for a short period of time. Usually I buy options for few months, so they are cheap. In this case my option was bought until November 15 2011.

Summary: Gold put option bought on August 23 2011, for 49,66/oz, with gold price strike 1770 USD/oz, and expiration date 15 October 2011. The gold option was sold on 23 September 2011, for 151,43 USD/oz or a 205% ROIC.

Please see my previous parabolic bets on Silver and Swiss franc and how they ended with huge profits.

Today, August 23 2011, I bought gold put option at 49,66 USD/oz with a strike 1770 USD/oz and expiration date November 15 2011. The put option on gold is for 1.1% of my trading account. The rationale behind this trade is the parabolic move that I detected. To be honest, I’m extremely optimistic that gold and silver will rise long-term and I plan to buy more of these precious metals after they go down big. No matter how much I love some assets, now we must face reality and the fact that gold has risen in parabolic move due to public fear and buying of retail traders. Gold has been up 10 years in a row, which is very unusual in any asset class. I believe that gold is overdue for a deep correction. We have a huge standard deviation parabolic event, which could correct at least a few hundred dollars. When I detect a parabolic move, no matter what the asset is, I usually risk a small amount of my trading account to buy put options while try to be as precise with the timing as possible.

Parabolic moves always end badly. They form because super high optimism about an asset, many factors supporting it, and it goes much higher than 200 DMA. There is also another red flag that might help destroy the parabola and it’s “margin hikes”. (more…)