The Crypto-Reformation (GFI,AU,AAPL,DIA,AOBC)
The biggest story by far this year in the financial world is Bitcoin, and the hop-along crypto-currencies that have been developed in its wake.
Our own commentary on the phenomenon has been limited thus far, with fellow Normandy scribbler, Hugh L. O’Haynew, chiming in earlier this week with his feelings on the matter at somewhat greater length.
We don’t want to bedevil you today with too much more on the story except to say that there is real evidence that the Bitcoin religion is stealing adherents from the chapels of the precious metal god.
Hugh mentioned this in his tirade earlier this week, but just yesterday we caught wind of a story that lends substantial weight to the matter.
Congressman Ron Paul, among the lone voices for ‘sound money’ in the legislature, published the findings of an ad hoc Twitter poll he took last week in which he posed the question –
A wealthy person wants to gift you $10,000. You get to choose in which form you’ll take the gift. But there’s a catch: You must keep the gift in the form that you choose, and you can’t touch it for 10 years. In which form would you take the gift?
The options included dollars, gold, a 10-year Treasury Note and Bitcoin.
And the results…?
Those results would be surprising under any circumstances, but given that Paul’s following consists of Austrian School economics devotees, goldphiles, Federal Reserve bashers, garden variety ‘preppers’ and devout constitutionalists, the numbers are plain stunning.
This is fertile precious metal territory, friends, yet the gold bugs could barely muster a third of the vote!
And we say the following –
Paul’s followers are not desperate, starving, third-world scavengers for any source of crisis currency they can get their hands on. In Venezuela and Zimbabwe, for example, there’s been massive interest in Bitcoin since their respective nations imploded financially, and inflation buried their currencies and destroyed their lives.
Here, in the U.S. of A., however, people are interested in Bitcoin at least as much as a speculative investment as an alternative, more trustworthy form of currency. And that includes the hard-money enthusiasts who follow Ron Paul.
And who wouldn’t be!?
With Bitcoin’s tremendous rise in value over the last year, the fire was bound to spread. At this time last year, Bitcoin was trading at a rate of less than $800 per ‘coin’. Today, the exchange has risen to an unbelievable 17,250:1! That constitutes a rise of 2056% in just eleven months.
And where she stops, nobody knows.
Have a look here –
At this point in the rise, Bitcoin believers should expect anything. The zigs and zags of the parabolic phase are by far the most dramatic and violent of any investment mania, so watch out.
And yet that’s not where our focus lies.
We’re rather more interested in the effect it’s having on Ron Paul’s troops, as it were.
And the answer to that question may be found in the following bit of chartitude that graphs the relationship of Bitcoin to gold over the last three months, the period, we should add, in which the Bitcoin mania began to burn like a wildfire, more than tripling in price as both the media and Wall Street turned it into a cause celebre.
It’s plain to us that something broke in late November that put Gold’s slow and steady climb into question and – dare we say it – puts the nascent bull move of the PMs back into question.
And we’re going to trade it when we come back…
But first we have three trades that require your attention, all of which have to be rolled out this week, each the product of an errant call on stock direction.
All three were last detailed in our September 19th missive called Things We Like. And Things We Don’t. There, we urged you to roll out your AAPL 140 CALL to December 15th (tomorrow). And today we’re recommending you do it again.
The CALL currently trades for $32.00. Buy it back and sell the AAPL February 16th 140 CALL for $32.50. That’s another 60 days and $0.50 more cents in the pocket.
Next up (from the same letter) was a rollout of the DIA December 15th 210 CALL, that requires the same treatment again.
The CALL currently trades at $36.55. Buy it back and sell the DIA June 29th 210 CALL in its place for $37.25. You get six more months and another $0.70 in the bargain.
Finally, we’re rolling out seven (7) AOBC December 15th 22.50 PUTs from September 14th. They now trade for $8.90. Buy them back and sell seven (7) AOBC January 19th (2019) 22.50 PUTs for $10.90 each. You gain a year’s time for AOBC to shoot its way higher and pocket $1420 in the process.
And now back to the action!
We’re going to have a look at the precious metals sector today, with an eye on two gold producers who’ve taken strongly divergent courses over the last year.
The companies are both ADRs that trade on New York, but whose activity is centered in South Africa. They are Gold Fields (NYSE:GFI) and AngloGold Ashanti (NYSE:AU) and their collective chart looks like this –
A glance at the relative performance of the two stocks shows that Goldfields is the better performer when gold bullion is on the rise, as it was through early September of this year, and poorer when it’s declining, as it has ever since.
We’re therefore going to design a trade that assumes gold making a sharp move higher, and we’re going to play it long/short, with GFI outperforming AU on the way.
And it looks like this –- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
Many happy returns,