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Saturday, January 18, 2014

The MOST Overlooked Market in the World Could Make You Rich by Marc Charles

A New “Twist” in the MOST Overlooked Market in the World Could Make You Rich

5:44 AM

Dear Entrepreneur:

“Are you kidding me? It CAN’T be that simple”!

That’s what a client said when I showed him a little-known “twist” in the precious metals market.
No….it doesn’t have anything to do with trading coins, picking mining stocks, getting cash for gold or even handling the precious metal itself.

More important, this little “twist” has made a lot of people a lot of money, including yours truly.
Before I show you the “twist” let’s get something straight.

 I Am Not Offering Investment Advice

So don’t report me to the Commodity Futures Trading Commission (CFTC)!
I’ll be as clear as humanly possible.

The information I’m giving you today only intended to be a basic understanding of the precious metals market. 

This information is NOT intended to provide specific financial or investment advice. 

On top of that, don’t rely on nor act the information without seeking the advice of a qualified financial adviser or futures broker. They can help determine if your financial circumstances are suitable for trading.

Ok……now that I’ve managed to scare you senseless… let’s get to business.

The Risk of Precious Metals Options

In deciding whether or not you want to become involved in any type of futures or options trading you should be aware you could both gain and lose large amounts of money. 

In other words, without limitation, you risk losing money because:
(a) You could lose all the margin funds you deposit with the futures broker to establish or maintain a futures position and lose further amounts as described in paragraph (c) below.
(b) If the market moves against your position, you may be required, at short notice, to deposit with the futures broker further monies as margin in order to maintain your position. Those additional funds may be substantial. If you fail to provide those additional funds within the required time your position may be liquidated. You will be liable for any shortfall in your account resulting from that liquidation.
(c) You could lose all monies deposited with the futures broker, and in addition be required to pay the futures broker further funds representing losses and other fees on your open and closed positions.
(d) Under certain conditions, it could become difficult or impossible for you to liquidate or close a position (this can happen when there is significant change in prices over a short period).
(e) The placing of contingent orders (such as a "stop-loss" order) may not always limit your losses to the amounts that you may want. Market conditions may make it impossible to execute such orders.
(f) The high degree of leverage that is obtainable in futures trading with the futures broker because of small margin requirements can work against you as well as for you. The use of leverage can lead to large losses as well as large gains.
(g) Futures and options trading are not appropriate for everyone. There is a substantial risk of loss associated with trading futures and options on futures. Only risk capital should be used.
(h) No representation is being made that futures and options on futures trading is appropriate for everyone or that it should be viewed as an alternative, replacement or supplemental form of income.

As I said…you should discuss these matters with a qualified financial advisor or commodity broker prior to commencing any trade.

How to Reduce Your Risk and Trade Like a Seasoned Professional 

We all agree there’s a risk in trading precious metals futures and options.
However, there are ways to reduce your risk.

In addition to reducing your risk, you can also make money, like I did, as an independent trader.
I started trading precious metal options from a back bedroom office in 1991. Three years later I was trading full-time.

My objective each week is to focus on legitimate business opportunities. 

What’s more, I like to focus on opportunities which do not require huge inventories, office buildings, employees, massive start-up capital, or boatloads of red tape. 

I also prefer businesses with easy learning curves too.

The greatest downside of precious metals options is probably the start-up capital. You will need money to open a precious metals trading account.

Most brokerages require a minimum deposit of $5,000 to open an account. I would recommend at least that much. But you can open an account with $2,000 at some brokerages.

Never Trade With Money You Can’t Afford to Lose!

There are many aspects of futures and options trading. 

My focus this week is on precious metals options trading. 

In future issues, I'll cover other markets and opportunities. 

But today I’m going to show you a little-known “twist” in the precious metal options market.
But first a quick overview……

An Overview of Precious Metals Futures 

A futures contract is an agreement (obligation) to buy or sell a given quantity of a particular asset at a specified future date at a prearranged price. 

Futures contracts have standard delivery dates, trading units, terms, and conditions. They can be based on any one of a number of underlying assets. 

There are futures contracts available in individual shares and stock market indices, bonds, interest rates, coffee, sugar, orange juice, and other agricultural commodities. You can even trade catastrophe futures!

The best futures contracts are traded on government-regulated exchanges like the Chicago Board of Trade (the largest futures exchange), ICE, London Exchange and the New York Mercantile Exchange.

There are futures exchanges in most industrialized countries.

Futures prices are quoted by every top financial website and business newspaper on the planet.

The total number of contracts traded onus futures exchanges in 2009 was valued at more than $600 trillion!

You can "open" a futures position by either buying or selling a contract. You can "close" a futures position by doing the exact opposite − either selling or buying the same contract. 

If you believe the price of the underlying asset will rise, you would buy a futures position. This is referred to as being "long." 

When you buy a futures contract and hold it to expiration, you would be required to take delivery of the underlying asset, or equivalent cash value, at a prearranged price and by a certain date.
But don't worry, only a small percentage of futures contracts are held to expiration. 

In the futures market most of the money is made during the life of the contract.

If you believe the price of the underlying asset will fall, you would sell a futures position. This is referred to as being "short." 

When you sell a futures contract and it is held to expiration, you would be required to deliver the underlying asset, or equivalent cash value, at a prearranged price and by a certain date. 

Beginning traders often have difficulty grasping the concept of selling something they don't own. What you are doing is simply selling something on paper - via the contract. 

There is a risk of sustaining substantial losses when trading precious metals options.


One way to reduce risk is to always have a specific strategy for leveraging winning trades and cutting losing trades quickly. 

In other words, you need to know what you’re going to do if the market moves against your positions. 

The little-known “twist” I’m going to show you today have worked for me, and for countless other precious metals traders. 

The “twist” is selling or “writing” precious metal options. I won't get into all the nuances of option trading right now – it wouldn't hurt to do your own research on Google or Wikipedia.

But know this, when you buy a precious metal option your risk is defined upfront.

In other words, if you buy a gold option for $500 that is the most you can lose.  

Your downside risk is limited to the “premium” or the price you pay for the option.

When you sell or “write” a precious metal option there can be unlimited risk if the option is 
exercised…but most are not. Most options expire before they are excercised.

How Professional Traders Make Money Using a Little-Known “Twist”

There are thousands of systems, techniques, and software programs on the market today which supposedly help you trade profitably. 

Most of these techniques and programs are designed to help you make money. 

Obviously, some products, programs, and strategies are better than others

But I learned a trading strategy from a professional commodity trader many years ago which still works today. 

The best part is you won’t need expensive sophisticated software trading programs or technical manuals.


The “Twist” in a Nutshell


An interesting phenomenon takes place in volatile or high volume markets.

There’s a frenzy of buying or selling….and then at some point, like clockwork, the buying and selling slows down.

In some cases, the buying and selling slows to a crawl and the market remains flat.
This is where the “twist” comes into play.

You can try this on paper without risking a dime to see if the technique works in actual market conditions.


But remember…..

The most important aspect to this technique is volatility or a rapidly climbing or falling market.
The precious metal market can be very volatile, especially when there are problems like war, uncertainty, stock market crashes, or sudden disruptions.

When an event like this occurs you can sell or “write” a precious metal option well above the current market price and the funds are placed into your account immediately.
Now…the trick with precious metals options is two-fold.

One - The option strike price needs to be far enough away from the current market price so the probability of it getting “exercised” or redeemed is very, very low.

Two - The option date needs to be close enough to the expiration date of the underlying 
precious metals futures contract, so the probability of it getting “exercised” is very low. In other words, your objective with selling or writing a precious metal option is to have it expire without it being exercised. 

One way to utilize both of these aspects is to calculate the price movement of precious metals over say a two month period, preferably during a violate period.

This calculation will give you a basic price range.

There are hundreds of ways to calculate the “time” aspect of options. 

But in my experience, if you focus on precious metals options expiring in 60 days or less you’ll be in good shape.

Here’s an illustration:

Let’s say the current gold futures price for the January 2011 contract is $1371.

The price of the January 2011 gold futures call option with a strike price of $1450 is 26.80.
NYMEX Gold option prices are quoted in dollars and cents per ounce and their underlying futures are traded in lots of 100 troy ounces of gold.

In this scenario the premium or amount of money you would receive for selling (or writing) a gold call option with a strike price of 1450 would be $2680 (26.80 x 100 ounces).
This gold option call would expire in less than sixty days.

If the underlying price of the January gold futures remained below $1450 by the second week of January, you would keep the entire premium, or $2680.

Can you see why people become so excited about precious metal options?

Granted, this is only a hypothetical illustration.

But if you do some homework and research you will find this can be a very lucrative market and opportunity.

Have fun and play nice.

Your humble host,


Marc Charles


Important Point: Unlike real estate, coins, brick-and-mortar businesses, and hundreds of other investments, the futures market is IMMEDIATE. This is especially true for the markets that have large volume and open interest (open contracts). The precious metals futures market on the NYMEX is HUGE. When you place an order to buy or sell, it's filled almost INSTANTLY! No lawyers, accountants, appraisers, government workers, or employees are required.

***** Action Strategy *****
If you're new to precious metals futures trading, start your education today. Research the topic on Google. Read books and articles written by hands-on (successful) professional traders. I've listed a few suggestions below.

This is one of the few businesses that enable you to "practice" before you commit any funds. You can "paper trade" futures before you start trading with actual money. 

Paper trading is easy too!

Go to any financial website that offers commodity futures quotes, like Commodity Futures Charts and Quotes. Now select the commodity quote you want. The quotes will typically list the opening price, the high, low, and settle, or closing, price.

Simply right down a precious metals option you would like to select based on the information I gave you today.

Then monitor the market to see if your trade would have been profitable in the real world.
It’s that simple.

I know you’ll get excited when you see the opportunities and potential of this “overlooked” market!

****** Valuable Resources*******
Top World Commodity Futures Exchanges
 
CME Globex Flash Quotes
Chicago Board of Trade (the largest T-bond futures exchange in the world)
Chicago Mercantile Exchange
Global FOREX
Kansas City Futures Exchange
LIFFE
London Metal Exchange
Hong Kong Futures Exchange
Minneapolis Grain Exchange
New York Board of Trade
New York Mercantile Exchange
New York Stock Exchange
South Africa Futures Exchange
Sydney Futures Exchange
Tokyo Commodity Exchange
Winnipeg Commodity Exchange

Commodity Brokers
Lind-Waldock
Alaron
Fox Investments
Great Pacific Trading Company
Ira Epstein
R.J. O’Brien
Traders Network

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