Cash For Less Gold

• Posted by Adam Warner
• on December 6th, 2009

At the mall last week we’re sitting at the food court and a notice an ad on the table telling me I could cash my gold at some kiosk and Shop Till I Drop. Or something like that. Should have known that was a sign of something.

So what does it look like when the entire world has the same trade on and tries to unwind in the same 20 minute window? How about this GLD chart?

I have 2 underlying assumptions on a trend trade like this. One is that it’s real unlikely that it just ends with an implosion so close the the new highs. Smells more shakeout than anything else.

The other is that a move that violent isn’t likely to just reverse overnight.

Volatility rallied pretty large as one might expect. In fact it’s as high as it’s been since the end of April. If it seemed high at 24…..how about 27? I guess the flaw in the theory that you can sell gamma here in lieu of an index is that ….well, it might actually decouple from an index. Sold some puts into the dip with room for more on the assumption above, that the move takes a little bit to play out.

One macro thought here. Volatiltiy does tend to transfer across asset classes, especially in a case like this where the trade is tied together. So perhaps the VIX will get some life.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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