GCM13 - Help with New Trader

D

davidtrounce

Hi,

I have been invited trade with a group called Woodlake Commoditiy Solutions. I am new to trading and am trying to find information on the following kind of trading.

I will do my best to explain the trading and I have some questions which I really hope someone with experience can help with.

The Company is Woodlake Commoditiy Solutions. They run out of the UK.

They offer a kind of trading in Gold where I invest $10,000 USD for a contract (?) of 10 options in Gold on the Comex Platform.

The Code is GCM13 and expires on May 28th, 2013.

As I understand, I may sell my options at any time before the due date and buy back in any time and trade again. If the price drops I only stand to lose the $10,000 USD and no more.

If it rises I can sell the options and take the profit minus 2% commission which goes to Woodlake. Their main involvement is in advising me.

Money is held in Malaysia and my account is with Nationalfx.com

I can buy call or put options and can sell and buy back in any time (I think).

Can anyone tell me what kind of trading this is (EFT, Options, Futures, etc)?

Where can I find info on this kind of trade?

Are there others (apart from Woodlake) who offer these "contracts"?

The only place I can see this "Contract" ( I am calling it a Contract but don't know if it is) is at Barchart and yahoo finance. Are there other places to view the live trading?

Where can I learn about the risks or rules of these kinds of trades?

Though I have been told I can buy in and out until the contracts expire, I have also read that I can only buy when the strike price is reached. Is that true for these kinds of contracts?

I would love some help to understand these GCM13 Gold options: The risks, the strategies and the rules.

Please remember I am a novice so please use simple language!

Kind Regards,

David
 
Quote from davidtrounce:



The Company is Woodlake Commoditiy Solutions. They run out of the UK.
More...

The priority is to get away and claim your money back. Then do some research/learning and only then (maybe) invest.


You need to find out if you can report them to FSA. http://www.fsa.gov.uk/ or even better get some professional legal advice
 
Hi David,

I would tread very carefully after what you have described if I were in your position. You woulfd have better luck going to the casino and putting it all on red or black, if your right great, fi your wrong the pain will be over quickly, with this trade you are likely to endure 102 days of gradually increasing pain.

It sounds like this a a derivative contract based on comex gold options , with odds firmly in the houses favour.

But just saying they are legit with 10k you could have bought roughly 10 x 1735Calls or 10 x 1480 Puts this last friday, with 102 days till expiry ( about $1000 each).

I have run these through a model, but as you mentioned barchart we can use that as well.

I will look at the calls only for illustration (puts will be similiar).From the model, firstly the calls have a 8.7% probability of expiring in the money. (not a good starting point)

To understand what time decay on the option will do roughly take a look at the following 1735 Calls.

June 1735 Call = $1020 (expires 102 days)
May 1735 Call = $530 (expires 69 days)
April 1735 Call = $150 (expires in 38 days)

So roughly if gold stays at it's current price in 33 days , you 10K is now worth $5300 and in 64 days you 10K is worth $1500. If gold prices dropped further you would fair even worse.

Using barchart again if you look at May calls which expire in 69 days the 1695 calls are at $1010 each roughly the same where 1735 calls are thats a 40 dollar difference, an option model spits out a slightly different number but taking the 40 dollars difference, gold would have to rise 40 dollars in the next month just for the 1735 Call to keep it's original value you bought it at.

I have only had experience with one dodgy gold option outfit way back in the 90's and there they were buying gold options , adding a heafty markup and then selling them onto their punters, I was young then but still had the sense to steer clear.

A large part of my living comes from selling commodity options and I can tell you in the open market with buying out of the money options your odds are tough enough as it is , buying deravitives on options your odds will be even less.

I would steer well clear if I were you. If you want to get involves in buying options , learn first about options through reading etc, open a brokerage account with reputable broker and start with a single option contract.
 
Quote from davidtrounce:


Please remember I am a novice so please use simple language!
More...
If you don't understand what you are investing in Don't do it

Educate yourself

www.investopedia.com good place to start

GCm13 is nothing more than a Gold futures contract [which the options are based on]

+1 to previous posters, get your money back [if you can], steer clear
 
Quote from plax:

Hi David,

I would tread very carefully after what you have described if I were in your position. You woulfd have better luck going to the casino and putting it all on red or black, if your right great, fi your wrong the pain will be over quickly, with this trade you are likely to endure 102 days of gradually increasing pain.

To understand what time decay on the option will do roughly take a look at the following 1735 Calls.

June 1735 Call = $1020 (expires 102 days)
May 1735 Call = $530 (expires 69 days)
April 1735 Call = $150 (expires in 38 days)
More...

Hi Plax,

Thanks for your help. No one at Woodlake mentioned anything about "decay" Here is the Deal.

I invested $10,000 USD and got 10 call options in GCM13 at approx $1672.00 a little over a week ago.

Price of Gold went down and under their advice, I invested another $10,000 USD. 5 Call options and 5 put options at 1647.00.

Now, Gold has dropped again, and according to what they have told me, with Gold at around 1611.00 My 5,000 USD in put options should be worth about $17,500 USD. ($1647-$1611=$36.00: 36x$500 (ounces) = $18,000.

So, if I sell my 5 put options I should come out with about $18,000 USD.

Is my maths correct? This is the maths I have been told to use by Woodlake.

I realise the (possible) foolishness of the investment so there is no need to go there. What i really need to understand is what my position is and what I should attempt to do about it.

Is my maths correct?

Thanks again for your help.

Kind Regards,

David
 
Quote from davidtrounce:

Hi Plax,

Thanks for your help. No one at Woodlake mentioned anything about "decay" Here is the Deal.

I invested $10,000 USD and got 10 call options in GCM13 at approx $1672.00 a little over a week ago.

Price of Gold went down and under their advice, I invested another $10,000 USD. 5 Call options and 5 put options at 1647.00.

Now, Gold has dropped again, and according to what they have told me, with Gold at around 1611.00 My 5,000 USD in put options should be worth about $17,500 USD. ($1647-$1611=$36.00: 36x$500 (ounces) = $18,000.

So, if I sell my 5 put options I should come out with about $18,000 USD.

Is my maths correct? This is the maths I have been told to use by Woodlake.

I realise the (possible) foolishness of the investment so there is no need to go there. What i really need to understand is what my position is and what I should attempt to do about it.

Is my maths correct?

Thanks again for your help.

Kind Regards,

David
More...

The advice was to recoup your funds and flee the scene.

Movement in the price of gold and whether you "own" calls or puts matters not. The longer you stay, the less money you will have.
 
I will echo the advice to get out now. Whether the firm is a legitimate broker offering regulated, exchange-traded products or they're selling some kind of derivative on exchange-traded products to fatten the spread and their commissions, doesn't really matter. What matters is getting your capital back and not investing/trading in an asset class you don't understand yet.

As someone mentioned above, if you decide you want to participate in the gold options market, do some homework, research brokers and start small.

Note: If you don't know how to use the broker's platform yet to look up your opening transactions and current prices, BarChart is not a bad place to start for free info.

GCM13:
GC = Gold (ticker/trading) symbol
M = June (if you're not in June, H = Mar, J = Apr, K = May, N = Jul, the rest are easy to find online)
13 = the year 2013

Find the put and call values that correspond with your strike prices here:
http://www.barchart.com/commodityfutures/Gold_Futures/options/GCM13?view=split&mode=i
You should also click on the word 'profile' in the light blue menu bar to get some details about contract size and trading hours.
 
P.S. If you are in the exchange-traded contracts, start your education process at the exchange's site. I still think the best advice is to get out, but if you don't, then reduce your position size to one put or call at each of the strikes you're already in. Watch and learn how things unfold over time. Don't send the broker any more money and don't make new transactions until you know what you're doing. You're probably going to lose money, but you'll lose a lot less this way.

http://www.cmegroup.com/trading/metals/precious/gold.html
 
Thanks so much for the advice, guys (or gals). i really appreciate it.

The key issue that I think was witheld from me was this, "The longer you stay, the less money you will have."

I do not understand the issue of decay and the issue was not explained to me at all. Any info on how this works would be good.

Thanks again for resisting the urge to hammer me for my uneducated entry in to the market :)
 
Hey Ktm, that was good advice. I could be considered a beginning options trader; I've just been buying calls or puts on the SPY or QQQ using CBOE.com's virtual trading to get my feet wet. Generally, I hold the positions for a few hours at most, and I've been virtual trading for almost a year. (I dedicated a year to virtual because I know options are not to be learned with real money). I don't have an interest in being short options because I just don't have the capital, (although this could be analogous to my greenness). I know that playing spreads can have its merits, but I've been doing ok just using an elasticity approach with simple long puts and calls. I don't believe in investing, and it doesn't seem to make sense to study fundamentals when you can just ride the trend of an index ETF. With companies like Amazon, and Netflix trading at their current ratios to earnings the fundamentals seem to take a backseat again.

I try to maintain zero directional bias. I am leaning towards the house of cards collapsing, but I'm not going to call the top.

Any advice on where to go to discuss options trading with real options traders. Is this the place to go? I honestly just want to be in a community with like minded people (I bore my girlfriend to death with this stuff.)

I trade SPY and QQQ because I want maximum liquidity, and I don't really see any reason to trade anything else, unless commodities show some action. ( I know foreign markets, and currencies can offer advantages, but knee jerks in the SPY pay well enough for me). My thought is if you get to know a few index ETF's really well, you know enough.

Time decay isn't relevant if you hold a position intra-day, although the Greeks are. I've made some nice gains on GLD, but I've thought why would I trade anything but SPY if I'm looking for micro-trends, with conservative stop losses in place.

You seemed smart, just wanted your advice on where to go to talk to experienced options traders. I am self-taught, realize the importance of other experienced traders ideas, and take them with a grain of salt.

Let me know if this message board is alive and kicking, never tried this.
 
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