Investment Reflection: Cash Secured Put Option on GOLD
Overview of the Trade
On 10 May 2024, I sold 3 contracts of a cash-secured put option on GOLD $Barrick Gold Corp(GOLD)$ with a strike price of USD 17 and a maturity date of 24 May 2024, receiving an option premium of USD 0.35 per contract. Subsequently, on 13 May 2024, I decided to roll over these 3 contracts to a new maturity date of 14 June 2024 and received a net option premium of USD 0.20 per contract. The GOLD market conditions played a significant role in these decisions and outcomes.
Market Conditions and Trade Adjustment
Initial Sale:
- Date: 10 May 2024
- Strike Price: USD 17
- Maturity Date: 24 May 2024
- Option Premium: USD 0.35 per contract
Market Conditions:
On 10 May 2024, the US employment figures showed signs of weakening, which increased expectations of an interest rate cut from the Federal Reserve. As lower interest rates generally reduce the opportunity cost of holding gold, GOLD prices edged higher. This optimistic outlook for GOLD prices prompted the initial sale of the put options.
Roll Over:
- Date: 13 May 2024
- New Maturity Date: 14 June 2024
- Net Option Premium Received: USD 0.20 per contract
By 13 May 2024, further data continued to support a cooling US labor market, reinforcing the likelihood of a future interest rate cut. GOLD prices showed an uptick, providing an opportune moment to roll over the contracts for additional premium income. This decision allowed for the collection of an additional premium while extending the maturity date.
Closing the Position:
- Date: 17 May 2024
- Premium Paid to Close: USD 0.24 per contract
- Stock Price at Close: Approximately USD 17.80
When GOLD prices surged to around USD 17.80 on 17 May 2024, I closed the position for USD 0.24 per contract, securing a profit before the new maturity date.
Financial Outcome
Initial Premium Collected:
- 3 contracts x USD 0.35 x 100 shares = USD 105
Additional Premium from Roll Over:
- 3 contracts x USD 0.20 x 100 shares = USD 60
Total Premium Collected:
- USD 105 + USD 60 = USD 165
Cost to Close the Position:
- 3 contracts x USD 0.24 x 100 shares = USD 72
Net Premium Earned:
- USD 165 - USD 72 = USD 93
Insights and Outlook
This trade underscores the importance of closely monitoring market conditions and economic indicators. The initial decision to sell put options was based on expectations of a favorable environment for GOLD due to potential interest rate cuts. Rolling over the options to a later date captured additional premium income while providing flexibility.
Key Takeaways:
1. Market Awareness:
The decision to sell and later roll over the put options was informed by understanding the macroeconomic environment and its impact on GOLD prices.
2. Flexibility and Timing:
Rolling over the options allowed for maximizing premium income while managing risk effectively.
3. Proactive Management:
Closing the position early, before the new maturity date, capitalized on favorable price movements, securing profit.
Conclusion
The GOLD cash-secured put option investment was successful, yielding a net premium of USD 93 after accounting for the cost to close the position. This outcome highlights the benefits of proactive trade management and staying attuned to market developments. Going forward, maintaining this level of diligence and responsiveness to market conditions will be crucial for continued success in options trading.
$GOLD 20240614 17.0 PUT$ $GOLD 20240614 17.0 PUT$
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