Short Term/Long Term on Europe (EWG, USO, UNG, GLD)

Executive Lounge, Options Trader Elite / Tuesday, September 16th, 2014

Sometimes we put on a trade that takes us months, if not a year or more to cash in on.

And sometimes it happens immediately.

We usually aim to be open and shut anywhere between one to three months from initiating, but as with life itself, there are always surprises.

And so it is this week, as we plan to cash in on two trades that we initiated in just the last fortnight.

Or, to be more precise, one and a half trades.


Great hair.

Let us explain.

Trade #1

Two weeks ago in a letter called Strangling the Energy Market we urged you to sell strangles on both the United States Oil Fund ETF (NYSE:USO) and the United States Natural Gas Fund ETF (NYSE:UNG). We felt both stocks were due for a brief slide sideways and that the premium collected on the trade would be ours after a relatively short duration.

And what happened?

We saw both commodities drop immediately – and more than we anticipated. And that means that the short CALLs on both trades have lost a tremendous amount of value.

Numbers, Huey! Give us the Numbers!

You’re so crass.

Here they are.

We sold the October USO 37 CALLs for $0.32 and they’re now trading for $0.09. Buy them back and you pocket $0.23 on every $0.09 invested for a return of 256%.

We also sold the UNG 24 calls for $0.35, and they’re presently going for $0.17. Repurchase them and you take home $0.18 on $0.17 invested, or a 106% prize.


As for the other side of the trade – the short PUTs – we’re leaving them be. They also have an October expiry, and we expect bullish action from both stocks in the weeks ahead.

With any luck we’ll be taking home all, if not the lion’s share of that original premium collected.

Pounds and Guldens! Short and Fat! Hop a boat to Montserrat!

[18th century English sailing ditty]

Trade #2

We put our money where our mouth is here at The Profit Hunter – you won’t see us dangling our porpoises for nothing.

So when we sold GLD CALLs last week in our letter called Profiting Thrice in Champagne and Ice, long time readers knew we weren’t being coy.

The trade went down like this.

We recommended you sell ten GLD September 125 CALLs for $0.28 each when GLD was still trading above support at $120.75.

That was a week ago.

And now?

Take a look at the chart –


Gold has fallen mightily. And what’s more, both RSI and MACD readings show little sign of let-up. RSI is approaching an oversold 20 read, but it could be some days before we finally reach that mark. And in the meantime, all the major moving averages are trending lower and should be unfurled by week’s end (insert).

All of which points to assault and battery in the gold realm.

Show us the money, dammit! Enough rhetoric!

The CALLs we sold for $0.28 can now be bought back for $0.08. And we say you do it.

That makes for a $2.00 take on $0.80 down, or a 240% profit in seven days.

Stick that in your lunch box and whiff it!

It’s the meanest moolah you made all summer!


By all means, brother, leave it be. But we’re closing today.

Play this roulette wheel long enough and you’ll see that anything can happen.

It’s not worth chancing it.

The options expire this Friday at the close, but a temporary bump higher could erase all our current gains. Why spit in the face of a 240% profit (that’s 12,480% annualized)?

Come on! – Smarten up!

We’re heading east now.

Not far east, or even middle.

But to Frankfurt, Germany, where we believe a bottom may be in for the German DAX. Or at least an interim bottom that could make for a good trade.

Let’s have a look.


This is the iShares MSCI Germany ETF (NYSE:EWG) for the last six months, and it has much to commend it, despite its recent seven week, nearly 14% tumble.

Consider –

  1. Price bounced off solid support at the long term moving average (in yellow).
  2. It then moved higher and got ‘scooped’ nearly immediately by the short term moving average (in blue).
  3. Volumes also expanded nicely at the lows, indicating a selling climax, at least for the time being.
  4. And finally, RSI registered a deeply oversold read at the lows (in green), hitting the urgent-action 20 line before recovering to retake its waterline three weeks later.

And now, with both RSI and MACD again looking ready to surface above that marker, we could see a strong round of technical buying.

So the question is, how do we play it?

Well, because we’re careful investors, we’re going to back up and take a look at the weekly chart first, because there we see less Broadway dynamite. In fact, the weekly chart could be read as outright worrisome.

Here it is –


The chart shows EWG’s price hovering between a descending short term MA and several rising longer term MAs (blue arrows). Normally, we’d see price move to touch one of those lines, and in this case it appears the lower, longer term moving averages that are doing the beckoning.

The action on the RSI and MACD indicators (in black) is also bearish. Both are sub-waterline and nowhere near oversold levels.

So, could it be that we’re in the midst of a longer-term bearish move for the German DAX?


But what about the daily chart, above? Didn’t that look bullish for the short term?

Sure did.

Could we be bearish and bullish at the same time.


And that’s the way we’re trading it.

A quick burst higher and a longer term slide to support at the moving averages – but not lower.

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The Profit Hunter urges you to consider 1) closing the CALLs on your USO and UNG strangles, as outlined above, 2) buying back your short GLD CALLs, also as outlined above, and 3) buying the EWG October 29 CALLs for $0.60 and selling the 3 December 26 PUTs for $0.25 each. Total credit on the trade is $0.15.


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The Profit Hunter urges you to consider 1) closing the CALLs on your USO and UNG strangles, as outlined above, 2) buying back your short GLD CALLs, also as outlined above, and 3) buying the EWG October 29 CALLs for $0.60 and selling the 3 December 26 PUTs for $0.25 each. Total credit on the trade is $0.15.


With love of the hunt,

Hugh L. O’Haynew, Senior Analyst, The Profit Hunter

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