Testy Tuesday – Oil Explodes Above $100, But There’s a Silver Lining

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So we will all pay for Putin’s war at the pump. Fortunately, as we discussed in the PSW report yesterday morning (which you can subscribe HERE), we covered that by going long on the money (/IF) and natural gas (/NG) and our 2 silver contracts are up $6,750 and our natural gas contracts are still at $4.50 – so still good for new trade as the Ukrainian offensive continues.

$2,450 is our stop on /SI Futures, as we want to lock in a gain of $5,000 but will let it run otherwise. Another hedge we really like is Barrick Gold (GOLD), the world’s largest miner, which has 69 million ounces of gold reserves at an average mining cost of $1,200 per ounce and, in bonus they also have 12 billion pounds of copper which is currently trading at $4.50 a pound although Barrick only booked them at $2.75 so there is a bonus of 2.1 billion in copper reserves and, at $1,900, gold mining profits would be $48.3 billion.

As it stands, at $22.50 you can buy the whole company for $40.2 billion and they’re losing $2 billion a year in the bottom line. What’s really funny about GOLD, however, is that if gold (/GC) only rises 20%, to $2,100 – GOLD earns another $200 per ounce on about 5 million ounces mined, which would represent a 50% increase in revenue – outperforming the metal itself. If gold drops 20%, to $1,700, GOLD is still fetching $500 an ounce while holders of the metal simply lose their bet.

Even better, we can play GOLD with options to give us an even greater advantage. GOLD was our trade of the year 2019 when it was only $13 around Thanksgiving 2018 but as a new trade you can:

  • Sell ​​10 $20 GOLD 2024 put options for $2.90 ($2,900)
  • Buy 25 GOLD 2024 calls at $20 for $5.40 ($13,500)
  • Sell ​​25 GOLD 2024 calls at $27 for $3 ($7,500)

That’s net $3,100 on the $17,500 gap, so you have $14,400 (464%) upside potential at $27 and you’re obligated to buy 1,000 shares of GOLD for $20,000s ‘ it drops and, if your spread is cleared, your net entry would be $23.10 – slightly higher than gold is trading today. So it’s an aggressive game, but we think GOLD is great value here and we certainly don’t mind owning 1,000 shares at $23.10 because if it drops to $13 (where we bought it 3 years ago), we would just buy 1,000 more and be in 2,000 shares at $18.05 on average.

So the real question is – do we REALLY want to own 2,000 shares of GOLD for $18.05 and if it’s an emphatic yes, then there’s no reason not to do the above spread . In fact, I would almost rather own all 2,000 shares for a $6.50 ($13,000) discount than just make $14,400 and never get the chance to own the stock…

So there is always something to trade, even in times of war. Lockheed Martin (LMT) is our Stock of the Century and the century is still young but LMT has already shot up from $20 in 1999 to $433.80 at yesterday’s close and we didn’t buy it because of Afghanistan or the Iraq or Crimea or Ukraine but because of the merger – what we think LMT will crack before its competitors. Still, wars are a nice bonus and they’ve been doing well lately.

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In our long-term portfolio (LTP), our current LMT trade is already very profitable, 2 years ahead of schedule:

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As you can see we took advantage of the sell off in September and bought 10 of the 2024 bullish $300/370 call spreads for $32,800 net and sold 5 of the 2024 $300 put options for $18,360 to help pay – much like the GOLD play above. So the whole spread was $14,440 net and we were promising to buy 500 shares of LMT for $300, which like GOLD sounds really good to me! We’re already at $41,000 net on a potential $70,000 on the spread with $39,000 (95%) up for grabs if LMT simply holds $370 through January 2024 – aren’t options fun?

Of course, at PhilStockWorld, that’s just our leftovers as we’re earning $55,560, or 384% of our initial spend of $14,440. Like I said – FUN!

There are always opportunities to trade in the markets – you just can’t rush. The trade that looks hot when things start to change doesn’t always stay that way as something like a war starts to drag on, but certain trends set in and we can drive them to incredible profits.

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Why doesn’t Ukraine just blow up the slow convoy“? This would be the subject of Donald Trump’s first impeachment, when he held the delivery of military weapons hostage if Ukraine didn’t dig up the dirt on Biden’s son – ah, the good times. Trump has stopped delivering hundreds of millions of dollars in aid and, since he did not get what he wanted, he also blocked all promises of aid to Ukraine.

Trump pushed his vice president, a key intermediary between his administration and Ukraine, to skip Zelenskyy’s inauguration in April 2019, a move made as the newly elected Ukrainian president sought recognition from the United States for show solidarity against Russia. Pence then met with Zelenskyy in Warsaw, where they discussed Trump’s decision to freeze military assistance. Fortunately, Biden welcomed Zelenskyy last fall and delivered the Javeline missiles that were so effective against Russian tanks – as part of $650 million aid package, Biden began shipping in December.


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