Karim Rahemtulla (Investment U):
Of all the great investments you could have made in 2009, gold is right up there among the best of them.

The price of gold has surged this year, taking gold shares upwards with it. Readers of my Xcelerated Profits Report have rung the register with 45% profits on Goldcorp (NYSE: GG) and a triple-digit winner on Golden Star Resources (NYSE: GSS). We’re also up big on Yamana Gold (NYSE: AUY) at the moment.

All is good, right?

On the surface, perhaps. But not if you believe what the options market is saying…

Yamana Options Signal a Share Price Drop

Using Yamana as an example, the options market is betting that over the next 12 months or so, Yamana may fall from current levels of around $13 back into the single digits again.

Just take a look at the January 2011 $7.50 put options (the right to sell Yamana shares at $7.50), currently trading at $0.70 cents per contract. This means the put buyer thinks Yamana’s price will fall to $6.80 – almost 50% below current levels – in order to be in the money. The $6.80 price is derived from subtracting the price of the option from the strike price ($7.50 minus $0.70 = $6.80). This tale is similar across other gold shares, too.

These put options are expensive relative to Yamana’s share price – the result of gold prices moving sharply in previous weeks and causing the volatility in gold stocks to increase.

As a quick refresher, the price of an option is based on four major factors:

The price of the underlying shares
The options strike price
The time to expiration
The volatility of the underlying shares
Two Ways to Play Gold Prices… But Only One Viable Option

So if you’re a gold investor looking to participate in the market, what can you do to protect your profits, or buy shares at a lower price? Here are two potential ways…

Click here for the rest of Mr. Rahemtulla’s Analysis at Investment U.

Paralysis is not an option. Neither is making 1% or less on your cash every year when there is a high probability of out-of-control inflation in the years ahead.

You need to have a plan that can take advantage of what the market offers. And simply put, that means employing strategies that work both the long and short sides…

Expand Your Investment Horizons

Until recently, most investors have feared executing anything but the most basic investment strategies: Buying stocks, trading stocks, and in many cases, just buying and holding stocks.

While there’s nothing wrong with any of those moneymaking methods, they only scratch the surface of what the market really has to offer.

And in an increasingly complex and volatile market, there’s no better time to expand your horizons and learn how to execute the strategies that can enhance your returns, protect your portfolio and get you excited you about investing, rather than fearful.

Are Options Dangerous?

My specialty is options.

When I mention that to people, I’ll often get a rolling of eyes, or some kind of, “Wow, that’s kind of risky, isn’t it?” reaction.

Are options “dangerous” investments?

Well, any investment is dangerous if you don’t understand it. Even having money in a CD can be a painful experience when interest rates are rising and you’re locked into 2% for five years. Just ask those who locked up their money at 8% in U.S. Treasuries in the mid 1970s, only to watch rates eclipse 18%.

So options can be dangerous… if you don’t know what you’re doing. Then again, investing in Worldcom, Enron, WAMU, Fannie Mae and General Motors was dangerous, too.

And if you don’t take the time to learn how options work and what’s happening with your money when you use them, options most likely will prove dangerous for you.

The people who lose money in the options markets are the ones who view it like Vegas on Wall Street. They use options to gamble. But options aren’t weapons of financial destruction. They are, in fact, the opposite…

A Barrage Of Options Benefits

I’ve spent years telling people that far from being scary, options are very efficient instruments that allow you to control your money like no other tool on the market today.

Many investors have realized that once you do your homework, options make you a smarter investor, less dependent on the market’s vagaries and whims.

Among their benefits, options allow you to…

• Buy stocks for less than their current prices… or get paid for the effort.

• Protect your downside by offering insurance against downward movement in price.

• Generate greater income than dividends from your current holdings.

• Control stocks and benefit from their movement, while using significantly less capital to do so and giving you the luxury of more time for the situation to work in your favor.

• Play both sides of the market or a stock simultaneously for potentially unlimited gains.

So why do people think options are dangerous?

To answer this question we must take a look at the other side of the trade…

Winning Without Gambling

For every option seller, there is a buyer.

For every covered call, put-sell, straddle, strangle, etc, there has to be a counter-party. Most of the time, youdon’t want to be in this position.

These are the gambling types I mentioned a moment ago. In their eyes, options represent a lotto ticket to fortune. The chance of winning the lotto in a state like Florida is one in 18 million. But that doesn’t stop people from buying tickets. The losers in the options market adopt the “you can’t win if you don’t buy a ticket” mentality, giving the entire subject a bad name.

But you don’t have to join them. Instead you can execute proven strategies that work – and work well in any type of market, especially volatile ones. Over the next few weeks, I’ll explore several strategies in-depth (a mini-workshop if you will), so stay tuned, Meantime, feel free to browse our archives to get a head-start.

Source: The Options Market: Overcome Your Fear And Embrace These Lucrative Instruments

Standard & Poor’s/Case Shiller 20-city home price index fell 0.6 percent in April, after a 2.2 percent decline the month before. Economists expected an April drop of 1.8 percent

“It’s a little better than expected, but not much. On a top to bottom basis, home prices are down 30 plus percent, which underscores the amount that home prices have to climb to get to normal territory,” said Dan Greenhaus, an analyst at Miller Tabak & Co in New York.

“While they’re better than expected in the short term, in the larger sense the housing market remains under great pressure.”

On this last day of the quarter, fund managers often enhance portfolios as part of “window dressing” by selling losing stocks and scooping up the winners. The process can add to volatility.

Analysts noted the shortened week could lead to thinner volumes and increased volatility. U.S. markets will be shut for the U.S. Independence Day holiday on Friday.

S&P 500 futures rose 2.20 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futuresgained 29 points, and Nasdaq 100 futures added 2.75 of a point.

The S&P 500 is up 16.2 percent so far this quarter, putting it on track for its best period since the fourth quarter of 1998, when the index jumped nearly 21 percent. The S&P 500 has gained 37 percent since hitting a 12-year closing low in early March as early signs of an economic rebound surfaced.

NEW YORK, June 30 (Reuters)

After all, most mutual funds, exchange-traded funds (ETFs) and managed accounts offer long-only strategies. And why not? After all, the strategy is simple: These portfolio managers buy securities and hope to take advantage of price appreciation.

But the ongoing financial crisis proved those investors wrong – for several reasons. After all, what do you do in a trendless (sideways) market? And what about a declining market?

In either situation, the profit payoff from a purely long portfolio doesn’t figure to be very large. And that’s no surprise. After all, when bear markets arrive – as they periodically do – long-only money managers are typically limited to raising additional cash, or seeking conservative investments with limited downside, meaning the upside potential is also fairly small. And as investors have seen all too often during the current financial crisis, money managers who insist on “fighting the tape” can often generate big losses for their clients.

That’s where long-short investing strategies come into play.

If the markets head up or down, you’re positioned to profit. And given the wild volatility we’ve witnessed in the last year, any investor not playing both sides of the market, simultaneously, quite frankly, deserves it if they drown their portfolio.”

Unfortunately, many investors have learned their lessons the hard way for the past year and a half as virtually all classes have declined in value, resulting in sizable losses within their portfolios.

“This environment has exposed the flaws in traditional asset allocation theory, Capital Asset Pricing Model (CAPM), or whatever label you choose to put on it,” said Tom Samuels, managing partner of Houston-based Palantir Capital Management Ltd. and manager of the Palantir Fund, a global all-cap long-short mutual fund. “While Markowitz (Harry) and Sharpe (William) still have their firm believers, sophisticated investors are realizing that they cannot achieve true diversification merely by being long a variety of asset classes.”

Samuels believes the majority of long-only returns are influenced by the direction of the overall markets and that long-short investing strategies provide one of the few ways to achieve true portfolio diversification and risk control.

“Long-short represents the only asset class that can effectively handle both sideways and bear markets,” Samuels said. “The asset class allows investors an opportunity to systematically approach the markets and individual risk parameters differently than being long-only.”

The Long and the Short of a Newly Popular Investing Strategy

A long-short money manager has the ability to both buy and sell stocks to help reduce risk during such less-than-optimal investment environments as a trendless market or even a bear market.

The long-short strategy often serves as a hedge from overly bearish markets by allowing investors to take advantage of upside potential (long positions), while also benefiting from downward movements of certain investments (short positions). In choppy markets – like those of today – the strategy can help investors book some gains as they focus more on capital preservation, and not simply appreciation.

In reality, investors should consider incorporating some form of a long-short approach as part of the overall asset allocation of their portfolios, experts say.

Brian Lipton, founder of Gaithersburg, Md.-based YellowWood Financial Advisors Inc., seeks out investments that are not correlated with traditional stocks and bonds. Lipton views long-short investment products as another piece to the portfolio construction puzzle, and has incorporated hedged equity mutual funds as part of a tactical allocation – a way of reducing exposure to the risk of a long-only securities position.

“We realized long ago that we cannot ‘time’ the markets,” said Lipton. “We typically allocate about 20% to 30% of our equity portfolios in a tactical manner. Hedged equity represents a part of that allocation that helps satisfy certain risk elements and, of course, allocations that reduce long-only exposure in this environment have been beneficial. We have found that hedged mutual funds have been a very good choice during periods of intense volatility and could work well during other times as well.

Lipton’s firm uses one fund that goes long on favored positions, short on out-of-favor positions, and another fund that buys equities and hedges them with short positions on various indexes.

“While the latter fund is 100% hedged today, that percentage could change based on their views of the market environment,” Lipton said. “Security selection is still important.”

Hedging Plays: Make Macro Calls, Dodge Market Falls

At Palantir, Samuels looks for opportunities to hedge long positions, while also seeking profits on the short side. In managing his long-short fund, Samuels will make macro calls on the markets and the economy, micro calls on companies he believes to be either under- or overvalued, and also employs market-neutral arbitrage trades by pairing long and short positions in similar securities.

“Right now, we are short the dollar by owning the [PowerShares DB U.S. Dollar Bearish Fund (UDN)], an unlevered ETF that inversely mimics the movements of the U.S. currency,” said Samuels. “That position represents a macro call against the dollar and the ETF shot up dramatically when the Fed announced its intent to aggressively buy Treasuries to lower rates. Additionally, we believe this short trade provides nice cover as some domestic companies may struggle relative to their international counterparts.”

Samuels’ fund is also betting against U.S. Treasuries through short positions in an ETF that tracks long-term government securities.

“Historically, central banks have had mixed records of holding rates down, particularly when their currencies begin to fade,” Samuels said. “Shorting Treasuries provides an opportunity to make money on that macro call, while also serving as a hedge against certain long industrial and consumer-related domestic equities that may struggle in a rising interest rate environment.”

Dave Walker, YellowWood’s director of operations, points out that his firm has begun using a long-short commodities-based fund as a way of employing this non-traditional investment strategy.

“We have been allocating a portion of certain clients’ portfolios into long-only commodities funds for years, but gains and losses have recently come so fast and furious that we chose to move into a hedged product,” Walker said. “We realize we cannot time these markets on a daily basis by investing long or short. But based upon the trends in the global economy and surrounding specific categories of commodities, a hedged commodities fund allows us to participate in this alternative asset with lower risk and volatility. We will trail indices when there is a quick rebound but, more importantly, we expect to curb the downside.”

Market Neutral Pairs

Palantir’s Samuels explains the pairs trading concept through a hypothetical example.

“The market-neutral pair trades entail buying a company in a high-quality security as measured by free cash flow (FCF), low debt, and [solid] profitability, and simultaneously selling a security in the same sector that we perceive to be [of a] lower quality based on these same parameters,” Samuels said. “Let’s say, we liked Intel (INTC) because of where the company is in its product cycle, its low debt position, and its positive cash flow. Conversely, we recognized that [Advanced Micro Devices (AMD)] maintains considerable debt and its last product introduction was under whelming. In this example, we may choose to go long Intel and short AMD.”

Samuels then discusses an environment that has the overall equity market declining by 30%, with Intel and AMD dropping 25% and 35% respectively.

“A properly executed paired trade would have returned 10% to the investor, even as the stock market as a whole lost 30%,” said Samuels. “The long-short manager then has the opportunity to unwind the arbitrage, but only one side at a time, if desired. We may believe AMD is more fairly valued after a drop of 35% and choose to cover our short, while still owning Intel, a high-quality stock that could appreciate should the market rebound. The long-short approach provides us significant flexibility, while the long-only manager has to identify high-quality stocks and then hope that the overall market direction cooperates.”

Client Interaction

YellowWood’s Lipton had not seen sheer panic from his clients – at least not before the Dow Jones Industrial Average recently fell below the 7,000 level.

“For the most part, our clients understand their allocations and we received very few distress calls,” said Lipton. “Nevertheless, we know the concern is there. When the Dow broke below 7,000, some became worried about further significant slides without any apparent market support. We spoke with them more about increasing the hedged positions and they were happy to control the downside better, while giving up a bit of appreciation potential. They were very interested in such investments, particularly given the uncertain environment we are in.”

And these days, a little peace of mind can go a long way.

[Editor's Note: Ron Brounes, CPA, is a regular contributor to Money Morning. A technical financial writer, Brounes, is president of Brounes & Associates, a Houston, Tex.-based consulting firm that provides writing, communications, and educational services for financial services professionals. Back in March, Brounes wrote about how the Obama stimulus package would affect your income taxes.]

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Source: How Long-Short Investing Can Lead to Profits in Today’s Uncertain Markets

[This is the eighth installment of a new series that looks at ways for investors to recover from the U.S. financial crisis. To check out the archive of previous stories in the series, just click here.]

Volatility was basically non-existent during Friday trading with less than a .50% difference between the high and the low of the dollar index. The overall bias, however, was a weaker dollar and the euro held onto 1.29 for a majority of the day and was near 1.2920 as I left the desk. The pound and Swiss franc were the only two currencies left on the bench last week with losses of about 1% and 2.5% against the dollar respectively. The rest were able to turn in a decent week with the Swedish krona on top of the pile posting a 6.5% gain.

The SEK got beat up last month on concern of its lending exposure to the Baltic states but traders have come in not only on thoughts of it being oversold but also as risk aversion has eased a bit. We saw Swedish inflation fall to a 3 year low of .9% as rising unemployment and slower demand are keeping prices contained. Their central bank, the Riksbank, will meet on Friday and most are looking for a .25% cut to .75%, so we’ll see if there are any surprises. The bottom line, not only with this currency but all of the other small European currencies, is that the euro needs to appreciate in order to provide any type of sustained traction.

I saw a report where Citigroup’s technical analysis team said that if the euro trades above 1.2992, we could see sharp appreciation and a break out of this range bound trading pattern we have seen for a while now. They didn’t provide any estimates as to how much but we did see he euro snap out of its 4 week decline last week. Its nice to see that we aren’t the only ones out there taking notice that a turn in the currency market could be inching closer.

As I came in this morning, we had a sizable sell off in the dollar during overnight trading with the euro shooting up to 1.3040. It looks as though investors in Asia were feeling better after the results of the G-20 meeting. The Asian stock markets were up on the day as the G-20 finance ministers vowed to combat the global recession by working together to clean up the toxic assets and OPEC refraining from cutting output. We blew right past that 1.2992 figure here this morning so we should get a better idea of its staying power as the day progresses.

China threw a cat among the pigeons as they voiced concerns about their holdings of US Treasuries and wanted assurances their investments are safe. Premier Jiaboa said “We have lent a huge amount of money to the US and I request the US to maintain its good credit, to honor its promises, and to guarantee the safety of China’s assets.” A Chinese analyst commented that they are worried the US may solve its problems by printing money which would stoke inflation and if the US can make sure this won’t happen, then China should continue to invest.

President Obama quickly responded to ease those concerns by saying in a press conference “Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the US.” Continued Chinese investment in Treasuries are crucial in financing the stimulus packages. I wouldn’t think any type of a major sell off is likely but I could see them backing off a bit if they don’t feel comfortable. It will be interesting to see if anything changes going forward, but I don’t blame them for wanting some type of re-assurance.

With not much to report on from Friday, we can look at what is due out here in the US this week. This morning we have Empire manufacturing, TIC flows data from January, and February industrial production along with capacity utilization. The TIC figures are going to be a big one, which are supposed to show an increase, and will tell us for sure if foreigners were still buying up US financial assets. The rest of the data out today is expected to disappoint.

Tuesday brings us supply side inflation with the producer price index and Wednesday will give us CPI along with the 4th quarter current account balance. The Fed meets on Wednesday as well and are expected to keep rates unchanged but any comments or statements that result could be market movers. We round out the week with jobs numbers and leading indicators, both of which are expected to be worse than previous figures.

All in all, the data out this week points toward a continuation of the recessionary pressures and not much in the way of good news. Lawrence Summers cautioned that monthly job losses of 600k+ are unlikely to end soon and job cuts are probably not going to stop imminently. Consumer spending is the back bone of our economy so as job losses continue to mount, its difficult to see any type of sustained improvement.

I’ll finish up with gold today as it continues to quickly bounce off of the minor sell offs we have seen. The actions taken by the Swiss National Bank last week have tarnished its view as a safe haven investment in some eyes, so gold would seem to be one of the few assets left classified as such. UBS said a couple of weeks ago they see gold trading as high as $1,100 within the next three months, which doesn’t seem too far fetched especially as support levels continue ratcheting upward. We’ve seen a small pullback so far with the risk takers out in the markets this morning but its still holding onto $920 as I write. Until tomorrow…

Currencies today 3/16/09: A$ .66.19, kiwi .5309, C$ .7900, euro 1.3027, sterling 1.4221, Swiss .8452, rand 9.9158, krone 6.7672, SEK 8.4452, forint 227.89, zloty 3.4308, koruna 20.4326, yen 98.26, sing 1.5329, HKD 7.7528, INR 51.3350, China 6.8382, pesos 14.5153, BRL 2.3051, dollar index 86.667, Oil $44.24, Silver $13.0750, and Gold… 924.52.

Source: A Building Block

But what is bad for the economy and terrible for the market does not have to wreak havoc on your portfolio. By employing the right strategies, you can multiply your wealth safely in just about ANY market. In fact, there are a number of investment strategies that have never been as safe and profitable as they are today.

Here are several strategies you should strongly consider right now:

• Selling Covered Calls

Selling (also called “writing”) covered calls is one of the safest ways to generate extra income from your portfolio, especially in today’s market. Due to the fear and volatility in the market, option premiums are much higher than their historical averages. As a “seller” of options, that works in your favor. This is a strategy that could easily and safely generate 20% annual income.

Selling covered calls is probably the lowest-risk form of options trading. In fact it is less risky than simply buying stocks. The strategy involves buying a stock and then selling someone else the right to buy it from you in the future. For this privilege, the option buyer pays you cash up front, thus lowering your cost basis for the shares you purchase.

Here’s a hypothetical example of how it works…

Let’s assume stock ABC is trading for $10 and the July call options on this stock, with a strike price of $11 are selling for $1.00. To initiate a covered call, let’s assume you purchase 100 shares of ABC. Then you sell one call option on ABC, representing 100 shares. You would immediately receive $100 in your account, therefore your cost basis on this transaction is $900 ($1,000 – $100).

There are three possible outcomes to this trade:

• If ABC is trading for any amount over $11 at the option expiration date, the buyer would exercise his right to purchase the stock from you for $11. In this case, you would make 22%, based on your cost basis of $9.

• If ABC is trading for less than $11 but greater than $9 at expiration, you would still own the shares at a gain, and you would pocket the cash you received up front. You could then start the process all over, to generate another round of income.

• If ABC is trading for less than $9 at options expiration, you would be holding the shares at a loss. But the income you received up front would offset the loss. And you could repeat the process again to recoup some of the loss and generate additional income.

The key to this strategy is to write covered calls on stocks that you would like to hold for the long term. These could be stocks you already own or new positions. The stocks you select should be those that you believe to be very safe and cheap. And you should employ this strategy at a time when option premiums are large – as they are now. Ideally, you will be selling options that expire within three to five months.

When the strategy works out in your favor (and it will if you employ the rules above), you can generate better than 20% annualized income on a conservative portfolio of stocks. On the occasions when the stocks fall below your cost basis, you would own a stock that you wanted to own anyway… but at a much lower cost than if you had just purchased the shares.

By writing covered calls on high quality dividend-paying stocks you can get an extra bonus. Best case scenario, you will keep the option premiums, you’ll keep the dividends, and you’ll keep the stock too!

• Selling Puts

Selling puts is another strategy that can generate an annualized yield in the neighborhood of 30% – 50%. When executed properly, a put selling strategy can be highly profitable and carry very low risk. This is especially the case in a market like we have today, where fear is high and option prices are elevated.

You can also sell puts with the goal of generating income. In this case, you want the put to expire worthless so you can capture the option premium. To accomplish this goal, you sell puts that are out of the money on stocks you believe to have very little downside risk… and which you would be willing to purchase at a much lower price, if necessary.

Here is an example…

Let’s assume that stock XYZ is selling for $13. We’ll also assume the stock has already fallen a significant amount (not too hard to find in today’s market) and you believe the rock bottom liquidation value of the company is $8.

With the stock trading at $13, the July $10 put option is well out of the money and selling for $1.50. You decide to sell these puts. When the trade closes, $150 will automatically show up in your account for every contract you sold.

The only way you could lose money on this trade is if XYZ trades below $8.50 ($10 – $1.50) on or before the option expiration date in July. That is a 35% drop from the depressed level the shares of XYZ are trading today.

And in the unlikely event that you were obligated to purchase those shares, you should still come out okay. After all, the liquidation value of the company is $8 a share and your cost for those shares is just $8.50. So the downside risk should be very small.

Remember, this strategy should be employed on stocks where you believe the downside risk to be minimal. And you should only employ this strategy on stocks that you would be GLAD to own at a price below where you sell the put.

You should also have a reasonable understanding of the true valuation of the company. For this reason, I would exclude most financial and insurance companies from this category, as very few people (including the insiders) have any idea how much these companies are worth or what is on the books.

In today’s market, you can expect a well executed put selling strategy to generate an annualized yield of 30% to 50% with limited risk. Selling puts in this environment and following the rules above can put big odds in your favor.

By selling put options, you could buy super-high quality stocks as much as 50% cheaper than today’s historically low prices. PLUS you’ll get cold, hard cash deposited in your account instantly… adding to your annual income!

Where You Can Learn These Strategies… and a Lot More!

By no means are these the only strategies that can be highly profitable in today’s market. We are also seeing a once-in-a-generation opportunity in high quality corporate bonds. Invest in the right bonds and you can see significant capital gains plus income… without taking stock market risk.

This is also an excellent market for shorting stocks. But you should not go out and just short any stock. The inevitable bear market rallies could put you in the poorhouse. The lowest risk opportunity is to short those stocks that are almost certainly going to zero – companies with an impaired business model and a massive debt load. There are dozens, if not hundreds of these companies out there.

Now for some even better news: you don’t have to do all of this on your own…

In June, at the Turnberry Isle Resort & Club in Miami, Investor’s Daily Edge and Mt. Vernon Research have asked nine top investment experts to share their number one strategy and top recommendations that are making a fortune in today’s market. Of course, all of the above topics will be covered.

To learn more about this conference and the once-in-a-lifetime opportunities we’ll be discussing, click here.

Source: Two Strategies Perfect for Today’s Market

If your portfolio is filled with green today, you have just one person to thank. Vikram Pandit, the same Citigroup (NYSE:C) CEO that helped bring the Dow to 6,500, gave the equities market a boost today when he told his staff he is confident of his company’s capital strength.

In an open letter to his employees that was obviously designed to find its way to Wall Street, Pandit tells anybody that will listen he believes the company’s pummeled share price was due to “broad-based misperceptions about our company and its financial position.”

He went on to discuss the company’s financial success so far this year. Thanks to revenues of $19 billion in January and February, the company has recorded an operating profit of $8.3 billion so far this year.

Of course, Pandit warns, that figure is before taxes and any special charges or write-downs. He also says March’s volatility could take its toll on the figures.

In other words, those are merely accounting figures. The real numbers will be nowhere close when we close this quarter’s books.

Why should we believe them now?

Pandit may be shooting himself in the foot with this memo. He is setting the earnings bar pretty high and has proven the company’s business model still works. If his next quarterly earnings report does not live up to today’s expectations, Pandit will be in the hot seat with no excuses.

Read the full article here: Citi’s memo: Can you believe it?

This from Lee:

In this globalized world, it’s no surprise to see the world’s financial markets intertwine in some fashion. That’s why we continue to see volatility run at much higher levels – be it in the stock market or commodities sector.

In the past, the physical and agricultural commodities have typically had very loose ties to the movement of the stock market. After all, why would the falling share price of Dell Inc. (Nasdaq: DELL) have anything to do with the price of corn or sugar? Ordinarily, no reason at all – but it’s not as simple as that any more…

A Changing Commodities World

The commodities world has changed in recent years – and if you know how to play volatility to your advantage, it’s changed for the better. Here are just three quick reasons why…

1. Instead of farmers merely using the commodities markets to hedge their crop, commodities have become more of a speculative game today.
2. It’s become very easy to trade commodities with a click of a mouse today.
3. Commodities are now seen as a viable and valuable portion of investment portfolios.

As a result of these three reasons, commodities are more subject to large money flows into and out of markets. With more individuals holding more commodities, they can sell off just like any other asset. And this can occur at the same time and with the same force as it does in the stock market.

In particularly volatile, and often irrational, markets like the current one, once the herd mentality takes over, the true fundamental value of crops can get unceremoniously shoved to the back burner in favor of what the crowd is doing.

In any event, the markets seem to have decided which direction they’re going to head in: Down…

Remarkable Value Amid The Market’s Rubble

Speaking of that irrationality I just noted, that’s pretty much the only way to sum up the price of numerous top-quality blue-chip stocks today. Many are trading at 15-year lows, with some even under $10.

But while this may cause some investors to throw a big pity party, if you believe in the long-term viability of the markets, putting some of your money to work today while everyone else is selling, it could present one of the greatest buying opportunities in a lifetime.

As for commodities, they will continue to trade on long-term fundamentals such as crop-growing cycles, weather patterns, herd size, supply and demand, etc. And there are some terrific opportunities here, too. So let’s get to it…

OPEC’s Winter Move Might Not Play Out Till Summer

In July 2008, the oil market began a downtrend that is still going strong today. The black stuff continues to make new lows, interspersed with quick bouts of short-lived upside rallies.

But once the price hits the descending moving averages (see chart below), the market gets knocked down again.  The combination of large oil supplies and waning worldwide demand has kept oil on the defensive, with $25 a barrel still in many analysts’ sights.

Three months on from OPEC’s supply cuts, we’re still waiting for the decision to factor into the market. At the moment, the farther-dated oil futures contracts are still moving lower in tandem with the front-month futures contracts.

I don’t think we’ll see the cuts make a dent in the market until at least June, so it looks like status quo for oil for the time being.

Two Ways To Play Our Bullish Outlook On Natural Gas

In a word… bullish.

That’s my take on the natural gas market, as the front-month futures contract has dipped below the pivotal long-term support area of $4.500 per MMBtu – a solid support level since late 2002.

At current levels, I continue to have a long-term bullish outlook. So how can you play the market?

1. Bullish trades involving long-dated, limited-risk options strategies (like option credit spreads) on natural gas futures options contracts, which trade on the NYMEX.
2. Invest in the Natural Gas exchange traded fund UNG that trades on the New York Stock Exchange.

I currently hold bullish natural gas positions in my Instant Money Trader and Triple Zone Profit Trader service that we run.

Knowing how the market can react to the upside with the threat of cold winters in the Northeast (where a majority of natural gas is consumed) and possible damaging hurricane activity on natural gas rigs in the Gulf of Mexico, I feel bullish plays here have a great risk/reward profile.

When You See The Dip… Buy

Amid all the financial market’s doom and gloom, one of the lone bright spots comes from a sector that we’ve mentioned as a pocket of strength for several weeks here.

It is, of course, the metals market – home to stalwarts like gold and silver.

Since December 2008, both have bounded along and made large upside moves. April gold futures have now crossed the watershed $1,000 per ounce mark – an area not seen since July 2008 – while May 2009 silver futures have managed to pop through $14.50 an ounce – silver’s first foray to that level since August 2008.

In mid-December, we noted that the gold and silver markets were beginning to look tradable again after washing out the speculative selling that had knocked the sector down from its all-time highs in July 2008.

With more “rational” investing now in these markets, and with global stock markets and economies still in turmoil, it continues to keep hard assets like gold and silver as the “go-to,” en vogue safe haven play.

Since we’ve already reached our near-term gold price forecast from the my previous column, plus our silver price outlook, too, we now believe that investors should step into bullish plays on large pullbacks in the gold and silver markets. It’s a strategy that should serve you well for the rest of 2009.

Look for gold to re-test the $865 area, while silver should re-test the $12.00 per ounce level.

And the way to play it…?

Other than looking at limited-risk option strategies from the COMEX futures options market, you can invest in the gold and silver markets through shares in ETFs like the SPDR Gold Trust (NYSE: GLD), Market Vectors Gold Miners (NYSE: GDX), or iShares Silver Trust (NYSE: SLV). You can also play options on these ETFs.

Drifting Below Support… And Creating Better Value

Having touched support levels that we thought would hold, the coffee and cotton markets have continued to drift lower. This will create an even better level to go long from and we’re just waiting for both markets to find a level that sticks.

With A Big Move Back Down, OJ Is Setting Up A Great Potential Entry Point

Lastly, I want to show you a long-term chart for orange juice futures.

This is another market we’ll be watching closely, as it’s now just about retraced the big upside move it made since the wave of hurricanes hit the Southeastern portion of the United States, beginning in 2004.

Each year, during late spring/early summer, the OJ speculators come out of the woodwork, trying to capitalize on potential disaster trades.

If OJ futures can re-touch the lows of 2004, it could be a great place to put in a low-risk bullish trade that aims to take advantage of any disruptions to the orange juice crop from this season’s hurricanes.

Lee Lowell

Source: Investing in Commodities: 3 Reasons Why Commodities Have Changed

Here he shows us covered call strategy investing and how it works.

This from Karim:

Just what is the best way to profit in a stock market like this?

Our mission here is not only to show you the sectors, industries, and stocks that are set up to fare well, and the trends you can play to your advantage, but to also show you how to profit from them in more advanced, sophisticated ways than ordinary investors.

And when I say “advanced” and “sophisticated,” I don’t mean “complex to understand” and “difficult to execute.” Far from it.

In recent columns, we’ve talked about investing in water, gold investments, the real estate market, and much more (check out our Smart Profits Report archives if you’ve missed anything).

The bottom line is that amid all the bailout and stimulus talk… the volatility… the fear… the constant doom and gloom… we continue to stress that there are ways to negotiate brutal bear markets – ways that can still bring in strong profits.

Covered call investing is one of them…

Covered Calls: The Perfect “Cover” For An Imperfect Market

We realize that times are tough. No doubt about that. But we’re not sitting around complaining about it. Our focus, as always, is purely on showing any investor how to take profits from any market.

And we’ve demonstrated that in recent weeks, due in no small part to our covered call strategy.

Now, before I go any further… I understand that options strategies can sometimes spook investors. They seem complicated, especially since most people are used to just buying and selling stocks.

But our job is to educate you… helping you become a smarter investor, able to take bigger profits…

2 Key Elements That Will Help You Beat Wall Street…

In some ways, Wall Street is like the world’s biggest casino.

The devious types who make their living there don’t want you to know about the tips and techniques that can help you win.

They’re perfectly happy for you to remain in the dark, unwilling to teach you about hedging your bets. They just want you to make them and grab your money.

Now, in some cases, I’ll be the first person to admit that hedging your bets is a flat-out bad idea. However, this is not one of those cases. And I’ll tell you why…

This type of market, complete with its daily volatility and blow-ups, requires that you expand your investing acumen. And this is where we come in, giving you the two key elements you need…

1. The necessary know-how.
2. The specific trades to take end-game profits.

Covered Call Buyers vs. Covered Call Sellers… Who Wins?

Using options does not mean gambling. If you’re relatively new to the options world, that’s the first fallacy you need to put aside. Options actually work very logically. With every buyer, there’s a seller.

The Buyers: 9 times out of 10 – especially with short-term options trading – buyers lose out. And with good reason: It’s like trying to predict where a stock will go in a couple of weeks or months – something that nobody is entirely capable of doing.

The Sellers: Options sellers, on the other hand, usually make money because they’re basically betting on this lack of supreme knowledge. Huh… how does that work? Simple…

While they acknowledge that they can’t predict where an index or stock will go with pinpoint accuracy, they at least want to try by making a well-informed, educated estimate. And they want to get paid for trying and waiting around. In particular, with deep-in-the-money covered call selling or put-selling, they want to own the underlying shares, but at a price that they specify.

I’ll give you an example…

Using Covered Calls To Invest In Gold

As we’ve written about here before, we liked gold investments when no one else did. So we put our money where our mouth was and bought shares in Goldcorp (NYSE: GG), a major gold producer.

But we were also aware that gold prices would likely remain volatile for a time, keeping shares from reaching our targets right away.

So what to do?

Easy. We bought the shares and sold call options against our position. This not only reduced our cost, but also gave us a quasi-dividend and increased our chances of a win.

In the end, our shares didn’t get called away from us at options expiration. But that was fine with us. We got another opportunity to lower our cost and increase our potential for a win by selling more calls.

We did the same with a recent trade in the Xcelerated Profits Report – and I’ll be doing it again very shortly. In this market, it’s how you play the game that counts. It’s all about risk management.

The Covered Call Investment Strategy – A Gateway To Safer Profits

In case you don’t know, we have the resources for you to learn about the covered call investment strategy (and several others, for that matter) in more detail on our Smart Profits Report website.

Scan our archives. It’s all free and essential reading if you’re serious about investing. We provide step-by-step instructions on how to execute various trades, as well as the rationale behind them.

And if you find something you really like, why not take your investing to the next level?

Source: Kiss Goodbye To “Ordinary” Investing: Why Smart Investors Use Covered Calls

Today, the situation for the VIX is looking quite intriguing. The highly watched index found the momentum to drop below its 50-day moving average. The VIX is currently indicated at 58.93, just below the moving average’s level slightly above the 60 level.

This is only the second time since the end of August the index has traded below its 50-day average. The last time was in late November and the trend lasted for just a few trading sessions. If today’s drop below the resistance level stands up, it will be an indicator of positive action to come.

What does it mean?

As a derivative indicator, the VIX is simply a mirror of what the overall market is doing. By itself, it has no inherent fundamental value. When it declines, it simply tells investors that volatility in the overall market is on the decline.

For average buy-and-hold investors, the VIX has little importance other than telling them the volatile, nausea-inducing ride that is the equities market is beginning to calm. But for options investors, a falling VIX proves that options prices are falling and the spreads between put and call premiums has narrowed significantly. After all, that is what the indicator is designed to tell us.

For the past few weeks, it has been difficult to implement many traditional options plays because implied volatility (the premium added to an options selling price) has been so high. An underlying stock needed to make a sizeable move for the play to pay off. But now that volatility is on the decline, options prices will drop and the profit potential will return. In other words, we can get back to traditional options strategies.

One company worth watching is Arena Pharmaceuticals (NASDAQ:ARNA). In case you missed the news from this $289 million biopharmaceutical this morning, the company just announced clinical testing results for its closely watched obesity-fighting drug, lorcaserin. Of the 469 obese patients in the trial, a statistically significant proportion of them lost more than 5% of their body weight when compared to testers that received a placebo treatment.

While the drug still has a way to go before reaching the market, this is good news for the company in a highly competitive market. So far today, share price has risen by over 10%.

Options investors looking for a trading idea should look at the company’s January 5.00 calls (UGGAA).  Trading for just $0.15, these options have a strong shot at profits as more investors learn of the good news surrounding this company.

As the VIX surpasses its recent lows, more and more options trading opportunities will arise. Keep your eye out for high-potential plays and take advantage of the market’s latest trends.

Source: The VIX declines, Arena Pharmaceuticals (NASDAQ:ARNA) surges