
Top dividend-paying precious-metal stocks – these dividends could triple!
=========================================================================

***Looking for protection against inflation or recession while getting paid to wait? Here are a few options to seriously consider.***

![](oo2ziztfbtq-carl-cerstrand-1-1024x683.jpg)

The case for buying precious-metals and miners was recently made [**here**](https://optionworkshop.net/blog/trump-won-and-you-missed-the-rally-now-what-part-2-goldsilver-precious-metals/), and now it is time to share our favorite trades.

Gold has been like a kite caught in an unrelenting storm for the past 10 years; flying to extremes ($1900)
on wind streams of economic collapse, monetary expansion and Brexit then dovetailing lower on Wall Street’s sporadic hopes of normalization.
For the better part of the last 4 years, Gold has been consolidating and trending lower
but with Donald Trump about to usurp the throne, the glory days may soon return with a vengeance.

:::cut:::

The prices of precious-metals have been unstable to say the least,
so it was unexpected when we dug into the dividend paying history of gold miners.
Not only have dividends remained stable throughout this volatile decade, a couple have ***grown*** dividends.
Not all miners are created equal and few investors understand the differences.

**Franco-Nevada Corporation** (FNV) and **Royal Gold** (RGLD) both have one of the highest dividend yields in this industry,
1.5% and it has been stable throughout.
RGLD has increased dividends almost every year for 15 years straight,
with an annual compounded growth rate of roughly 20% – right through the precious-metals downturn.
If gold has a sustained rise in price as we expect, dividends could triple in these names.

The main reason why FNV and RGLD can pay out such a decent dividend is due to their business model.
Both are royalty streaming companies – they invest cash into other miners
which gives them the right to gold and silver at locked-in low prices in the future.
This allows for a high degree of predictability in cashflows which in turn allows for higher dividend payouts.

***A 5-10% allocation to these FNV and RGLD are attractive at current prices.***

For those who want more upside if prices of precious metals are to appreciate significantly,
we quite like **SSRI**, **AEM** and **NG**. There are no dividends here but these are rare gems as they capture the most upside during rallies in gold.
Because of operating leverage, miners generally capture 2x of the upside in gold and these names capture even more upside compared to peers.

Other alternatives include ETFs which provide exposure to the entire sector thereby reducing individual company risk.
The precious-metals sector is split into roughly into two: the established miners who have proven reserves and stable cashflows (senior miners) and the exploration miners who have much higher risk (junior miners). **GDX** tracks the seniors and **GDXJ** tracks the junior miners.

Since individual company risk is less of a concern, buy and hold investors who want to aggressively hedge inflation risks
or participate in the coming gold rally should allocate greater than 10% of their portfolio to GDX/GDXJ.
Again, the current pricing is attractive in our opinion.

**How can I participate with options?**

Let’s say you’ve established that 1,000 shares of GDX is the optimal position you should have you’re not sure that the timing is optimal.
You can consider selling a put around the 18 strike for expiration in March and buy 500 shares of GDX outright.  
 We believe $18 is a major resistance area for GDX since even the strong optimism for rising interest rates
 and dollar did not push GDX below $18 recently.

As of Dec 30, 2016, you could have sold the $18 strike March 17 expiration for 0.57c,
meaning if GDX closes above $18.00 on March 17, you pocket .57c per share.
Selling 5 contracts (500 shares) would net you about $285 minus commissions.
Splitting the 1000 shares by selling some 5 puts and buying 500 contracts allows the investors to gain
even if the stock doesn’t move. ***And if the stock falls, the investor is still better off by $285.***

![](payoffchart.png){.thumb}

Buying the stock only gives a more aggressive payoff structure and would be the best bet
for those who are outright bullish on the timing and direction.
For those who think gold may take a bit of time to get going would be better off with buying the stock and selling some puts.

There are of course other ways to structure a bullish bet on gold – these include:
**bull put or call spreads**, **buying calendar spreads** and outright **call buying**.
Many strategies allow for very structured profit and loss charts where the investor knows exactly what their maximum risks/rewards are.

Until next time, Happy Trading!


Weekend readings, 2016/12/30
============================

## Paul Krugman: And the Trade War Came

> Corporate America is still in denial about the prospects for a global trade war,
> even though protectionism was a central theme of the Trump campaign.
> … The … relevant legislation gives the occupant of the White House remarkable leeway should he choose to go protectionist.

*Looks like a trade war is here…read how to benefit from this [here](https://optionworkshop.net/blog/trump-won-and-you-missed-the-rally-now-what-part-2-goldsilver-precious-metals/)*

:::cut:::

[http://www.marctomarket.com/2016/12/dollar-equities-and-yields-fall.html](http://www.marctomarket.com/2016/12/dollar-equities-and-yields-fall.html)

## How Important Is Information from FOMC Minutes?

> FOMC minutes releases can have sizable impacts on Treasury bond yields.
> The impacts are largest when the tone of the minutes differs greatly from the tone of the statement,
> presumably leading markets to change their expectations of future monetary policy.

*Analytical look at whether FOMC minute releases sway financial markets and how so*

[http://ritholtz.com/2016/12/important-information-fomc-minutes/](http://ritholtz.com/2016/12/important-information-fomc-minutes/)

## Near-Term Call Buying in UVXY

> Paper bought over 7700 UVXY Dec30 8 calls paying as much as .20 and as little as .13 throughout the day.

*At the highs today, UVXY touched $8.92, meaning the option buyer here potentially made more than 70c/share or $539K in 2 days on an investment of roughly $130K….wow!*

[http://www.theoptionsinsider.com/near-term-call-buying-uvxy/](http://www.theoptionsinsider.com/near-term-call-buying-uvxy/)

## Can Trump Pick Up Enough Crossover Democrats to Avoid Senate Filibusters?

> Republicans control the executive branch and both houses in Congress.
> That does not necessarily mean Trump can get the legislation he wants passed.

*A great analysis about how easily Trump’s policies can get past Congress*

[https://mishtalk.com/2016/12/26/can-trump-pick-pick-up-crossover-democrats-to-avoid-senate-filibusters/](https://mishtalk.com/2016/12/26/can-trump-pick-pick-up-crossover-democrats-to-avoid-senate-filibusters/)

## Artificial Intelligence, Automation, and the Economy

> This report examines the expected impact of AI-driven automation on the economy,
> and describes broad strategies that could increase the benefits of AI and mitigate its costs.

*Whitehouse article on the opportunities/threats and policy responses as related to AI*

[http://ritholtz.com/2016/12/artificial-intelligence-automation-economy/](http://ritholtz.com/2016/12/artificial-intelligence-automation-economy/)

## Aggressive Call Buying in CLF

> Traders are buying CLF Jan06 weekly 10 calls for .04.
> These options are 20% out of the money with just a week to expire.

*With Trump coming into office, this trade may work if there’s more talk about fiscal stimulus*

[http://www.theoptionsinsider.com/aggressive-call-buying-clf/#ixzz4UMdC5zyy](http://www.theoptionsinsider.com/aggressive-call-buying-clf/#ixzz4UMdC5zyy)

**We wish all our customers and readers a Happy New Year!**

**As always, Thanks for Reading! :)**


Trading like this can be fatal for you, Part 1
==============================================

I was 24 years old and it was July 2007.
I was sitting on the fixed income trading floor of BNP Paribas at the time and was just itching to take a big short on the stock market.
Equities had been rallying in the face of a crashing fixed income market.
It was like smiling into the fist of a much younger Mike Tyson.

I finally pulled the trigger after months of waiting and shorted as much high beta stocks my margin would allow.
After all, that’s how the legendary Jesse Livermore used to do it right?
I doubled my money in a matter of weeks and was on an emotional high. I truly believed I had found my calling in life.

:::cut:::

High off the initial win, I routinely maxed out my account by shorting S&P e-mini futures contracts.
I had one thesis and that was the stock market was going to crash due to the subprime crises brewing underneath the exuberant indices.
I could feel it in my bones – this was my short of a lifetime!

Fast forward 6 months, gone were my profits from my “big short” and gone also was my initial capital.
Easy come easy go, but the emotional pain persisted for much longer.

I’ll never forget the feeling of waking up to a $25K loss even before the market opened.
I closed my short in disgust by 9:45am…only to see the market close negative for the day.
The catalyst was the introduction of the TARP program to ease the strain on the financial sector which had no real impact for months.
But staring at such a big loss had totally incapacitated me mentally and even physically to react in the proper manner.

Yes, I had caught the top in the market and Yes, I doubled my money at first, but I lost everything.
The emotional suffering was made infinitely worse because just after I gave up,
the markets really started crashing, where -500pt days became routine.

I found out the hard way just how physically, psychologically, and economically taxing trading the wrong way can be.

A trader who fails to keep his emotions in check often make common mistakes that trap them in a vicious cycle:

* Revenge trading
* Not respecting stop loss levels
* Forcing trades, especially when losing money
* Chasing trades for fear of missing out

The psychology of trading is so fundamental to a long and healthy trading career. I wish I had read this article when I was 24.
If you are having issues keeping your emotions in check, do yourself a favor
and read [part 2](trading-like-this-can-be-a-fatal-for-you-part-2.md) of this article. Closely.


Trading like this can be fatal for you, Part 2
==============================================

In the first part of this article, I briefly discussed a rather painful early trading experience during the financial crises in 2007/2008.
I was short and still [somehow killed my account](trading-like-this-can-be-a-fatal-for-you-part-1.md).

I let my emotions dominate my trades earlier in my career.
My self-worth was tied to each dollar made or lost.
I was many things back then.
Too eager, too risk-loving, too young.

Eventually, learned that my trading career is like a war that never ends.
Every minute of trading is a battle with others trying to separate me from my money.
If we fail to manage our emotions, we become easy targets.
After blowing up my account multiple times, I learned some very painful lessons.

As promised, I will share with you my framework to keep psychologically sane while trading and also what to do when off balance.

:::cut:::

PREVENTION

The key is to prevent yourself from being off center psychologically.
Once you let emotions take over, it is time to stop trading.
There are a few guidelines I have developed over the years that I follow day in and day out.
It has helped tremendously.

Prevention is also my number one goal because once you self-destruct, it will take much longer to gain back what you lost.
Below, the orange line shows the corresponding gain you need to offset a particular loss (in blue).

![](hpHfx5I.png){.thumb}

**Here are my processes for prevention. I look at these every day before and after trading to make sure I’m inline.**

1. Set realistic goals – my goals have nothing to do with percentage returns or amount of money to make.
   They should fully be within my control.
   **It is crucial to develop a trading strategy that fits with your personality which makes it easier to abide by your trading plan when things get tough.**
   Know where to enter, exit and think about how you will react under various probable scenarios are before making any trade.
2. **Absolutely do not trade first then plan later while staring your fluctuating account balance. As long as I follow my guidelines, I have achieved my goals.**
3. Space out your day – I set hourly alarms to remind myself that for certain times of the day,
   I should be taking different types and amounts of risk.
   For instance, from 11:30am-3pm EST, I am rarely trading and if I am, my risk is minimal.
   I generally risk about 1-2% of capital on trades during heavier trading times and only 0.25%-0.5% during the lunch hours.
   **Having an alarm go off every hour also helps me to refocus and follow my trading guidelines.**
4. **Take a break if performance is subpar** – I stop trading for 1 hour after 3 losing trades in a row
   and stop trading for the day anytime I lose 5% of my capital.
   I stop trading for 2 days if I have 3 days in a row of losing trades.
   If performance continues to be poor, I decrease risk limits to 0.5% per trade.
   Additionally, I also skip 1 day of trading if I am up more than 10% of my capital in 1 day
   because I tend to take stupid risks following big wins.
   **Remember, you don’t get paid for the number of trades you take and you don’t always have to trade. Rather, it is extremely important to have no positions on most of the time so you have a better chance of staying objective.**
5. Monitor yourself – **Always take notes on each trade so you can improve faster.**
   How did you feel before and after making the trade?
   Were you nervous, regretful, angry, excited?
   You will be surprised to see familiar patterns forming over time and you will know how you should feel
   when you are in the right or wrong trades.
   For me, I don’t trade or dabble in tiny positions when I am sick or feeling unwell.
   Why go into battle when you are not 100%?

*But what to do if already in a massive loss or if already your emotions have clouded your judgement? Here are some things to consider:*

1. STOP – **Take a break right away if you are feeling off center or are trading recklessly. Close your trades and take a 10-minute walk/break.**
   You’ll thank yourself later.
   After all, there are 250 trading days every year and 10’s of thousands of trades to go.
   **Don’t try to hold on and make all your money back today or try to hit a home run the very next trade.**
2. Reassess – Have a think about why you lost money.
   Did you follow your trading plan?
   Can you do something to improve your strategy?
   If the market is too volatile or acting strangely, I sit out and watch the market for a few days just to get my feel back.
   **I get very excited when I can learn from my losses and improve my strategy for future trades. No strategy works forever so you must routinely step back, study your recent trades and try to make adjustments.**
3. Trade smaller – **After a string of losses, I force myself to trade much smaller, risking only up to 0.5% each time.**
   It’s better to add to the positions later when they are profitable and during a consolidation period.   
4. Call on other experienced traders or friends to talk about your situation and hopefully they can provide valuable perspectives.
   There are many coaching services which can keep help to keep your psychology in line.

Finally, taking a break doesn’t mean giving up.
Every time I have taken a break and reviewed my mistakes, I have come back stronger.
Through self-improvement over tens of thousands of trades, you will gain confidence in your strategy and in yourself.
By using this as a guide, I hope you also will find your unique path to skillful and calmer trading.

Blog #psychology

Top dividend-paying precious-metal stocks – these dividends could triple!

Weekend readings, 2016/12/30

Trading like this can be fatal for you, Part 1

Trading like this can be fatal for you, Part 2

Last thing