As early as May 16th and 17th it was clear to the public that legendary investor George Soros had made a significant investment in the Gold Market and had sold a large quantity of equities. While there has been more than two months since these disclosures were made, now is an opportunity to see how the small investor who had held these positions would be faring.
Due to significant volatility in both markets, there was an opportunity to make a significant profit on this trade. The Brexit vote alone gave holders of this position an opportunity to liquidate their long gold, short Stock position with tremendous profits. Unfortunately, it is not always easy to liquidate a position in a profitable manner. For those who are still holding the position, here’s a quick look at the returns on each position as represented by August Gold Futures and the September E-mini S&P. On May 17th, the E-mini S&P closed at 2044.50. The Chart below shows its last price this evening as 2167.75 for a return of 6% for the period. On the other hand the Gold contract closed at 1280.30 on the 17th and had a last price of 1314.60. This represents a return of 2.7%.
While it is impossible to determine how much capital Mr. Soros committed to each transaction or what trades he has made in the last two months, but if you put your capital to work using his ideas, it is unlikely that you are making money at this juncture. If you want to follow a particular trader, you should dedicate a designated amount of risk capital to the idea. Options trading can provide limited risk opportunities if you can design the appropriate strategy. Understanding options trading can take a significant investment of time, but it provides those with a creative instinct the opportunity to design positions to meet their risk/reward requirements. Our Options Guide PDF can get you started.
The Charts below show movement in the E-mini S&P and Gold since the middle of May, 2016. Due to Brexit, there was a significant period of volatility and that is particularly visible in the Chart of the E-mini S&P. The Implied Volatility of the E-mini options are currently trading significantly below the Historical Volatility of the underlying on a 20-Day basis. While there is a similar discrepancy in the Gold Futures Contract, it is not as accentuated.
While it is easy to get transfixed by the ideas of well-known traders, the most effective trading will most likely emanate from your own ideas. Following pre-determined entry and exit points to suit your own needs is likely to be far more successful than following someone public ideas. Ideas that are made public by traders have already taken place and therefore your price of execution is unlikely to be the same as that of the large traders. For options traders, understanding how to examine liquidity, evaluate Historical and Implied Volatility, the Skew and choosing the appropriate strategy to meet your risk/reward requirements can make using options contracts an effective trading tool. If you have any questions: Contact Us.
Options trading involves significant risk and is not suitable for every investor. The information is obtained from sources believed to be reliable, but is in no way guaranteed. Past results are not indicative of future results.