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PAX, LUX ET VERITAS SINCE 1965
Post Gold ETFs, Again
Created by John Eipper on 06/21/17 8:31 AM

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Gold ETFs, Again (Tor Guimaraes, USA, 06/21/17 8:31 am)

Ric Mauricio stated on June 16th, "I believe [Tor's] Las Vegas comparison would be more apt if NUGT or DUST were traded short term, which is what they were designed for anyway, but I found many investors don't understand this."

I believe Ric may have missed my point.

If one looks at NUGT's 5-year chart for example, the share price went steadily down (relatively little fluctuation) from $7,584 (high) to a low of around $20. The 1-year chart high was around $136. And everyone seems to agree that going up long term is not likely, even though NUGT and DUST are promised to be inverse ETF's in the short run. The charts for DUST look not as bad, but bad enough for meaningful long-term bear trading.

If we know all that then let's do some possible DUST plays right now for examples:

The DUST share price now is around $31. Sell the DUST January 2018 at $70. Calls for $2.40 per share and sit on them for the next 7 months. Likelihood that the price will get to $70 by next January is practically zero. If you like more adrenaline, short the $45 calls for more money and risk.

We can make things much safer by combining this play with a January 2018 call spread (I. e. buy the $20 calls and sell the $35 calls).

We can do similar plays using NUGT shares, now that it has recently reverse split.

That is what I had in mind when I said, ""Wall Street is just like Las Vegas but with crooked games. ... Most important, if you can figure out how the game is crooked, you can make money with the house." It is somewhat sneaky for the average guy for Direxion to sell NUGT and DUST as inverse ETFs, since they both go only down in the long term.

JE comments:  Are you (also) confused about inverse ETFs?  Click below for an explanation from Investopedia.  To my mind, they look like formulas for losing lots of money--especially if an economy booms.

Aren't the transactions outlined above zero-sum games, meaning, you have to find a transaction partner willing to bet the other way?

http://www.investopedia.com/terms/i/inverse-etf.asp


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