Should You Place Call Or Put Options On Goldcorp?
One of the most common questions that I get asked as an analyst is the following: Should I invest in gold? The answer to this question is a lot simpler than one might expect – it depends. For starters, it should be known that gold is a safe-haven investment during times of geopolitical uncertainty, equities weakness, or falling interest rates. At this juncture, the world is teetering on the edge of a recession, with the MSCI all country world index having plunged 20% from its high in mid-2015 as can be seen in the chart below. For those who don’t know, the MSCI all country world index is a rather broad measure – a weighted index – of equity market performance globally. It comprises a mix of emerging market stocks and developed economy stocks. So when you see the sharp declines in the MSCI ACWI index you are effectively looking at a snapshot of the overall performance of the world economy. With major averages plunging, tracking the movements of crude oil it is clear that stock market volatility is reaching a crescendo.
This is easily evidenced by looking at another one of the measures that I routinely use to gauge general trader and investor sentiment: the volatility index. The CBOE (Chicago Board Options Exchange) VIX provides the most up-to-date data on volatility indexes for major averages. There isn’t a single volatility index, there are several and one of the most important ones is the S&P 500 volatility index. As can be seen from the below chart, the volatility index has spiked by 7.04% which is in consonance with the general sentiment that we are seeing with selloffs in equity markets. The chart below reflects the sharp increase in volatility for the S&P 500 Index (SPY). As you can see, it is trading at a level of 28.14 (+1.85 points) for a gain of 7.04%. Volatility indexes such as this one are certainly nothing to cheer about, since rising indexes are often associated with plunging indices. In other words as the S&P 500 index declines, so the volatility index spikes. It is a great harbinger of trends in the market and it certainly dovetails with the economic sentiment that is being felt in the broader market.
You will notice that there is a correlation between increasing volatility index figures and demand for gold. Equities investors have an aversion to volatility, but without volatility gold traders would not be in business. Volatility implies seesaw movements in price, and this is precisely what binary option traders thrive off. Now is the perfect time to be immersed in binary options trading since there is tremendous volatility in equities, commodities, indices and currency pairs. In order to generate short-term gains for binary options trading in companies like Goldcorp Inc. (GG), a certain degree of volatility is required. You will notice that as stock prices increase, volatility will decrease and vice versa. Now, we are witnessing a period of increasing volatility and decreasing stock prices. These are the perfect conditions for gold mining stocks to thrive under. Rapid price changes up and down are the norm and under current conditions gold stocks are among the best performers for 2016. Take a look at the following chart with returns for the year to date for major gold mining corporations:
The contrast between the performance of gold mining companies such as Harmony Gold (HMY), Sibanye Gold Ltd. (SBGL), GoldCorp Inc. and the performance of the Nasdaq, the Dow Jones and the S&P 500 is startling. In fact, most global averages have plunged over 10% for the year to date. This is confirmed by the performance of the MSCI ACWI.
The Takeaway:
Goldcorp stocks have spiked in recent weeks, on the back of rampant weakness in equities markets. Investors are flocking to gold as a safe-haven asset to try and bolster their financial portfolios in the face of widespread global uncertainty. The US dollar has declined in recent weeks, and this is helping to boost the demand for gold. Gold surged by 3.65% for April delivery on the COMEX and was selling at $1,237.90 per ounce. Binary option traders needn’t limit their focus to gold mining giants like Goldcorp Inc, since there are several such companies that are enjoying a similar bullish run. Among the other reasons why investments in gold make sense at this time the following:
- The global community has completely lost faith in the ability of central banks to stabilize financial markets.
- The threat of negative interest rates is looming large, and the fact that Janet Yellen never discounted that as an option is also causing consternation among traders.
- Oil price weakness is arguably the biggest thorn in the side of global economic well-being, with deflation remaining an ever present concern.
Now you will be surprised to learn that as a long-term investment, most analysts will advise you to sell Goldcorp, given that its return over 12 months is negative. However as a binary options trader you should be considering call options.
Disclosure: None.