Great "Speculative" Opportunities and Gold : LUSENET : TimeBomb 2000 (Y2000) : One Thread

....Some readers here may have their preps in-line and want to speculate a "little" on the opportunities of market crashes and increases in the price of metals or ?. Bets on the crashes and increases are called puts and calls and have tremendous risks (read as lose all your principle) and tremendous leverage (read as 100's in $'s turn into 1000's in $'s) Mind you, I'm talking about speculation before Y2K. Notice I keep using that word "speculation. Now before someone else does, I'll flame myself: $ should be put into preps, and hard goods, not speculation. There, hopefully now we can stick to answering the question of this thread and not argue over the percieved foolishness of those who wish to speculate. Thank you!......Question: How does one get into the options game, in a small way, say $100's if they are not a seasoned investor with a diversified portfolio? For example, how might the uninitiated place a put of $200.00 on gold to hit $400.00 before Y2K or further out if that improves your position?......Problems I've seen for ultra small investors: 1. Minimum investment requirements 2. Brokerages too conservative to sell options without diversified portfolios as a reverse hedge 3. Trader inexperience (hence this thread).....I hope there is an answer here because I have beat my head against the wall trying to place one of these small puts (bets)....Thank you, Tim speculaive Johnson

-- Tim Johnson (, July 25, 1999


If you have no experience in this type of trading, you are best to leave it alone. If you lose, you may end up owing more money than what you originally went in with.

-- sittingback (, July 25, 1999.

Better yet if I have a wise uncle or aunt to guide me that I may avoid the pitfalls, gain "experience, and benefit. Tim

-- Tim Johnson (, July 25, 1999.

I think if you wish to speculate it should be fairly easy but very risky in current scenario.

One could open an account at any one of the online trading sites. By sending in your check for $1000 or more you can purchase stocks or options online. To trade in options most if not all trading companies require the investor to sign a special options waiver saying that you acknowledge the risks of options trading. This is to protect the brokerage firm from disgruntled investors - not to make you aware of the risk of options. Before investing go to a good bookstore or library and read up on the subject.

With a small investment, one could buy a put option (puts are the right for the holder to sell stock or an index at a fixed priced for a fixed duration of time)on say the S&P 500 or on one of the other indexes. For under $1000 you could, assuming the market crashes and you could sell your put, capture all of the change in price between the current level and the future lower level. If the market goes up before you close out your position (by buying an similar offset put) you could loose your entire investment. If the market goes up and stays up, your put option would expire and be worthless. By buying the option the most you could lose is equal to the amount of your original investment plus brokerage fees.

OTOH, you could sell a call (calls are opposite of puts and allows the holder the right to buy the index or stock at the call price). Here you get paid immediately but must maintain an amount of cash or stock or collateral on account in order to cover the call if the buyer chooses to exercise it. In this case you are betting that the market will go down and the call you sold will be worth less or expire and be worthless. By selling a call, you could lose more than the amount of the original investment if the market moves significantly against you.

There is always someone on the other side of the trade betting against you that the market will go in the opposite direction than you want. Many of these are professinal option traders with more experience and information than you. You could be right about the long term direction of the market but still lose due to a significant short term price movement in the opposite direction.

IF I were going to hold stocks through Y2K (which I am not), I would definetly evaluate the most profitable opportunity for selling covered calls as insurance against a downward price drop. Covered calls means you own 100 shares of the underlying stock for which you have sold the option. You pocket the option price paid by the buyer of your call and if the market goes down get to keep all of the option price. Of course if the stock goes down $50 and your option netted you $5 this is small potatoes but the $5 would be real money in your account while the $50 drop would be a paper loss unless you actually sell at the lower price after the drop.

Be careful speculating against the trend - increased volatility can wipe many a careless investor.

-- Bill P (, July 25, 1999.

Tim: If you speculate that gold will go to $400 an ounce and have $200 to risk, then you want to buy a CALL *not* a PUT option. Because options (compared to futures) have limited risk (you can ONLY lose your total investment whereas futures contracts are potentially unlimited loss), then you should be able to open an option trading account with a broker for a modest amount. Call around. Buy some books from Amazon (not necessarily for trading advice, but to learn how the markets work). You might also want to buy a home study course -- search Ken Roberts and Larry Williams.

Be VERY careful with your terms, Tim. Your broker will sell you exactly what you asked for -- not what you meant. BTW, the "tuition" for my education in this market has cost me several thousand dollars, so this advice is potentially worth far less than what you paid for it.

-- DaveW (, July 25, 1999.

I don't have a lot of experience with gold, speculative investments, and the effect of Y2K -- as a matter of fact, nobody does, come right down to it -- but I have cashed out my 401k and put a huge chunk of it into gold and silver coins. I am not looking to for some big trend reversal to occur that will make me rich, I am looking at protecting my money by putting it into a form that I believe has the best chance of weathering tough times, including a Y2K barter/meltdown scenario.

Do youself a favor: Go to the site, read all the articles that they have, and also monitor their Gold Forum (with many of the posters to that forum clueless regarding Y2K). After a week rummaging around there, you will be in a much better position. (In fact, you may then want to post your questions directly to the Gold Forum, where you can get the benefit of some very educated answers. But do yourself a favor, read what is there first.)

-- Jack (, July 25, 1999.

There are a lot of problems speculating.

1) Read several weeks of post on USA-gold forum, also Gold-Eagle, Kitco, and any others out there.

2) One major thought is that the "turn" of the price of gold will be when all paper gold transactions are repudiated. This means that your puts, calls, and options no longer have any practical claim on physical gold, and you lose your investment. Be careful.

3) My own feeling is that the major trigger event will be a stock market crash, perhaps caused by a drop in the value of the dollar/rising treasury bond rates.

4) When the stock markets tank, many will want to get their hands on physical gold. If that is too difficult, many will buy gold stocks. My sense is that gold stocks will go through the roof right before Dec. 31, 1999.

My advise is to buy lots of physical metal (gold and silver) and take possession. If you want to play some extra games, buy gold stocks now (especially those that are not hedged, so they would profit from an increase in gold prices). Sell these stocks as close to Dec. 31 as you feel comfortable. Sell for cash or treasury bonds. In the worst possible case (treasury bonds lose their value), you still have quite a bit of physical metal.

I talk to many people who have a lot of money in IRA to 401k in mutual funds. I recommend that they switch their money to a large family of funds (like Fidelity or Vanguard). At this point, put most of the money in treasury bonds, but some percentage (10%-50%) in the gold fund offered by the family. Make sure you know how to switch your money from one fund to another by internet or touch tone call. At the last minute, switch to 100% treasuries. This gives you a way to profit from the end of the year mania from within the rules for IRA or 401k.

I am not a financial advisor. I am regarded as a lunatic by my friends. But I am practicing what I am preaching with my personal funds.

Good luck. And yes, make sure you have a wood stove, food, water, and all the rest before playing any of these games.

-- have some bucks (, July 25, 1999.

Thanks ya'll. I am a long time lurker at Gold-Eagle and did try to get info there by posting. The only response I got was one person cautioning me to stay out of the market. I have been following gold closely at Gold-Eagle, Le Metropole Cafe', and am a member of GATA.....Thanks for the advice on the unavailability of physical gold when winning on a purchased call. I have given some thought to the leverage of untainted gold stocks......Thanks for the advice and I hope it helps some other Time-Bombers.....I'm off to work now. Be back Wednesday. I do community protection work with unprosecuted developmentally disabled sex offenders, and am there continuously for 64 hrs......Best regards, Tim

-- Tim Johnson (, July 25, 1999.

To answer a couple of questions without telling you how to invest --

If you're going with options of precious metals you need an account with a commodities broker. These guys are not stock brokers. Stock brokers (most)are not licensed to deal in commodities. Commodities brokers handle futures and options in grains, meat, precious metals, bonds, petroleum, and a few other items. In general they will ask for $5000 to open an account. Reason: if you call, all excited and bothered, some morning and say, "I've just got to have this," you have to have the money in the account. Many of their trades are done just for a day or a week, so they want the money up front.

Once the account has been opened, and the money is in their bank, just call the broker and ask him/her to buy the option you want. Arm yourself first. The WSJ has futures and options prices. For options, you'll want the strike price and the expiration date. In gold you could buy options at 400, 390, 380, 370, etc. with 380 corresponding to $380 per ounce, and you can buy with expirations on a monthly basis. Sit down with the paper keep a record for a while of the prices of various options. Learn how big a futures contract is: a gold contract (COMEX) is 100 troy ounces of gold. You might want to buy an option that sells for $2.50........that is $2.50 per ounce for the 100 ounce contract, or $250.

Yes, you're right that you could make thousands by putting up hundreds, but Dave isn't the only person who paid an expensive "tuition." Few people make money trading commodities their first year of trading. There are a bundle of rules to learn, all of which keep you from losing much on any one trade, so that when you do hit you make money for the year.

BTW, if it were as easy as reading gold-bug editorials, everyone would be rich. Ask the gold-bugs just how well they've done this past year, or two year, or even three years (as a matter of fact gold has been in a very long term bear market. Will it turn around because of Y2K?

It may, it may not. Now you know why they call it speculation.

BTW, in general, gold stocks follow the stock market. Reason: when people are trying to bail out of the market they sell. Sometimes they sell everything, especially if they are leveraged in the stock market and need to raise money to pay off margin calls. Under these conditions, a stock is a stock is a stock. It gets sold because it's in that broker's account.

-- de (, July 25, 1999.

P.S.: the above is my opinion only, your mileage may vary.

-- Mike T. (, July 25, 1999.

Don't forget to diversify. If you have extra storage space, buy some consumer goods that you can sell later on down the line. Sell to whom for what? Good question. Gold might protect capital or get you out of a rough spot. No one knows. No one knows. No one knows.

-- Mara Wayne (, July 25, 1999.

I have been buying stock put positions that expire in January 2001. That way I can ride it out for a year and a hal, if I have to.

I have positions in IBM, HWP-Hewlet Packard, GTW-Gateway, SUNW, LU- Lucent, AMGN-Amgen, MSFT- Micro-soft, AMAT and GE. All have done real well, and the bigger they are, the bigger they fall! All of these stocks have put prices in the one dollar range. So it will cost you around a $100 to buy one contract.

I suggest you buy far out of the money inexpensive Puts, because even though you may fifty times your money, it will be cheaper than the others and will be easyer to sell and unload after the crash. If you buy "at the money" expensive Puts, after the crash they will be way too expensive and will be hard to sell.

I'm planning to make a couple of hundred thousand dollars after the crash and then convert it into gold, even though the price of gold will have risen. Gold will be better than un-Federal Reserve Notes.

-- freddie (, July 25, 1999.

have some bucks,

Hello, I'd like to point out that the idea that Gold will rise as the stock market crashes is wrong IMO.

Take a look at what happened during the last major correction, October of last year. Did gold surge? NO. The two DO NOT complement each other as was once believed. In fact, if stocks crash, gold will crash to.

Other than that, Gold (and silver as well) have proven to be terrible investments over the years. Demand for gold is declining, and you just don't the see spikes to 900 bucks an ounce that there were ten (or fifteen?) years ago.

In short, Gold is recognized as being defunct as a method to store money. Investors have abandoned gold by and large. Large governments like Great Britain are dumping it en masse.

The only guys that make money off Gold and Silver are the people that sell it to small investors that don't know better. (I was one of the guys that bought silver at 30 bucks an ounce as an inflation hedge many years ago.. OUCH) Don't get suckered.

-- Bryce (, July 25, 1999.


fair points (sorta), However...

you're not factoring in y2k... or Japan... or FEAR... or the Euro... or... FFF EEE AAA RRR...

Joe Bob says this is a buying opportunity :)

-- Andy (, July 26, 1999.

Andy, speculation is speculation. We cannot say for sure that gold will be a winner. People have already lost their butts the past few weeks.

-- holdingback (, July 26, 1999.


each to his own, I also have lost a fair amount in the last couple of months, c'est la vie, I would still rather have physical gold than digital dollars and stock that I cannot unload because I get a constant busy signal WTSHTF -

we'll all see soon enough :)

-- Andy (, July 26, 1999.

check out this thread for why gold will go ballistic, over $2,000 oz.

-- Andy (, July 26, 1999.

Be careful. You can never "guess" what will happen to the markets. I have a financial background and when I "Got It" in March 1998, I knew I had to "get out of the stockmarket" where I had been successfully investing for 15 years. I did lots of research - LOTS OF RESEARCH - and then in May 1998 moved my 401K and IRAs into Gold Mutual funds. Seemed to me that gold could only go UP. It was at about $300 and almost a 25 year low. What was my downside - it couldn't fall much further, not with y2k uncertainties, I reasoned. Since gold stock mutual funds do not correlate exactly to the price of gold, which I knew when I invested, I could only make money, right? Wrong (at least so far). I've seen the balance of my accounts decline by almost 40% since May 1998. If I had not moved my money I would have had a 40% increase!. Lucky for me, my husband wasn't in such a hurry to move the rest of our investments. We only recently moved the bulk of our investments out of stock and stock funds and into money markets. And yes, I'm also the proud owner of physical gold that I purchased for between $312 and $330 an oz. Remember that you pay a "premium" not the actual price of gold when you buy it. I found out, after I moved into gold, that the gold market is a manipulated market, not a free market. That is one reason why even though Y2K fears are causing upward pressure on gold prices, the prices keep falling. I love reading the gold discussions on I've learned much from those folks. Please be careful and make sure you have all your other preps done before "speculating". My best to everyone!

-- Gail (, July 26, 1999.

But Gail, I bet you slept better at night, after your research :), knowing that you had been pro-active... Oh how the Russians and Brazilians wish they had done the same as you back in '98... You are of course right, get everything else squared away first (y2k preps- wise), then act accordingly. I'm still in the process of going your route Gail, I still believe you made the right decision, just a little prematurely :), patience glasshoppa!!!

-- Andy (, July 26, 1999.

Try the "Prudent Bear Fund" (BEARX). It shorts the market and buys precious metals for you. Obviously has gone straight down most of the way, but we already knew this.

-- Dave (, July 26, 1999.

Andy, you're a doll! Are you available for dinner anytime soon? I, too, think I did the right thing. It's so hard to be patient, but I did sleep better at night. Not only because of my investments, but my preps too. Whenever I get "crazy" I just go to Costco and stock up! Hope y'all are doing that too. Again, thanks for your kind words.

-- Gail (, July 26, 1999.


Hi. Don't sweat the gold price. I have my own opinion about it, but if you are happy and you sleep better, then great.

I'm a COSCO bug too ;-)

-- Bryce (, July 26, 1999.

The best scenario for gold during the market crash in my opinion, is this. During the worldwide stock market crash, the central banks of the varying nations will behave as the individual Asians did during their market meltdown of late '97. They will sell gold in order to get scarce cash for paying thier debts. This will go on for as long as gold is considered a commodity by the masses. When the crisis reaches a certain point, gold will be percieved less as a commodity, and more as real money. This is after the selling by central banks worlwide has driven the price of gold down between $100 and $200. As banks fail, and the fiat money of the governments throughout the world loses its value, gold will be appreciated for its traditional role as real money. Its price can mushroom ten-fold, or more, from this point. Thus it is best to bide one's time if considering a substantial purc

-- Jim (, July 26, 1999.

Y2K means stagflation.

Less production and higher prices when the Fed tries to reflate the market.

The last time this happened, gold went through the roof.

Bullion coins are VERY comforting when you have Milne or Infomagic nightmares.

-- nothere nothere (, July 27, 1999.

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