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April 4, 2007

Follow-up to a Gold Fields article, Wed., Apr. 4, 2007, 5:20 PM

On October 17, 2006, I put Gold Fields (NYSE:GFI) under the microscope. I wrote a detailed plan of how I would trade the stock using put and call options.

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If you had waited until January, when the stock price next dipped below $16, and wrote the $15 puts for say 3 or 4 months out, and bought the $15 calls then, you would be a happy trader today.


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The stock dipped only to $15.75, which was 25 cents above my earlier stated purchase target, so you would have just done the options trades.

You would have written the 15 April puts for about $1.25, which are now $0.05, and will expire worthless. The $15 calls would have been bought for about $1.75, and now are trading at $4.30 bid, after hitting a high of $6.20.

Posted by Posted by Bill Cara on April 4, 2007 05:20:19 PM | Category: Trader Tools

Discourse

Thanks for this, Bill.

This is really, really helpful...like kibitzing you at the card table...

I wasn't reading your blog back then...should you care to offer company commentary and trading strategies in future, I will 'hang on your every word'.

A question now, for you and/or others, do you have the same regard for RSI for distribution/accumulation of junior miners, as you would for the Cara 100 companies?

Posted by: joey [TypeKey Profile Page] at April 4, 2007 6:19 PM [link]

joey, With junior miners, it really pays to go to the trade shows and meet the jockeys face to face. Then you have to study their riding style.

With the junior miners, it's more like watching a pack of sharks swimming around until food is dropped in the water. The "jockeys" are typically not going to do much until they see the public getting anxious to buy.

You can more easily spot the price cycles with the juniors than with large cap stocks because they are hyped as a group and tend to move together. Remember, the junior mining business is really the venture capital business. The public trading is just a tool.

In a nutshell, trading junior miners is a different game than trading the Cara 100. Volume is a bigger factor. Block trades usually cross right before major moves.

The promoters (jockeys) of stocks that have zoomed in price (usually following some block trades) then put out hyped news releases, which usually come late in a cycle.

What typically happens after a price increase to a new level is that you start to see churn, ie, high turn-over with little further movement higher in price, but lots more IR releases. That's usually when the insiders are selling. After the pull-back, and prior to the next round of promotion, they’ll buy back in.

I disregard the regulatory filings (insider trading) for the penny stocks because (I believe) most of the jockeys (but certainly not all) are trading through undisclosed accounts or via friends & family. But, in any case, price and volume tells me all I need to know.

Posted by: Bill Cara [TypeKey Profile Page] at April 4, 2007 6:53 PM [link]

A bit tangential to Goldfields, but...

GATA has JP Morgan as stuffing the big surge in gold this morning. I was late for work watching the gold open at home, saw gold go vertical for a few minutes, a few dollars, and thought "That won't be allowed to stand." Sure enough there was a hairpin reversal. I'm no expert that it looked completely unnatural and a gross version of what seems to happen very blatantly lately.

I'm not complaining about that. As Weldon says in "Gold Trading Boot Camp" "It is what it is." I wouldn't be trading the stuff if I didn't expect the hijinks.

Here's where I get to my point:

Morgan managed a placement for Goldfields. If I'm one of those being placed long into Goldfields by Morgan, on the one hand, and on the other hand Morgan knows it is actively stuffing the gold price by massive shorting to defend their position, do I have any recourse as an investor? If Murphy is correct, it seems very abusive.

Of course, the Bush administration seems to have exempted companies acting on behalf of the govt from lots of laws and liabilities. If Morgan is acting for the trading desk of the Fed I guess they are pretty much untouchable here.

Blah.

Mike
NYC

Posted by: MikeNYC [TypeKey Profile Page] at April 4, 2007 11:24 PM [link]

Hello Bill,
I've been reading your blog for a few months and i do not know if i missed it..but did you happen to upload your notes from the PDAC conference?
Also, i don't see you talking about and commenting on uranium stocks very often..is there a reason for this? Love the blog otherwise and will continue to read...

Posted by: WolfStone [TypeKey Profile Page] at April 5, 2007 2:32 AM [link]

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