Trading the platinum-gold price spread

K

kalasend

I'm toying with such idea to trade the collapse of gold price with respect to platinum.
From this picture it seems historically gold price cannot exceed platinum for long:

<a href="http://www.flickr.com/photos/11362126@N04/6022119135/" title="pl_gc by kalasend, on Flickr"><img src="http://farm7.static.flickr.com/6200/6022119135_7ccda47000_b.jpg" width="1024" height="575" alt="pl_gc"></a>


I will be using PTM, GLD and GLD option in this trade:

-10 * GLD@172.72 (margin required = 519)
83 * PTM@20.63 (margin required = 429)
1 * GLD 225 2011-11-18 Call @1.21 (delta = 0.10, no margin required)

The call is merely there to hedge gold's continuous up in the near term, which may require rolling into another option.
 
One significant thing to note, however, is that there's no option for the physical ETN's. So hedging becomes challenging.

Are you saying that there's no need to keep paper-to-paper(i.e PTM vs. GLD) or physical-to-physical (PPLT vs. PHYS) pairings? Well, I can't think of the pro's and con's at the moment, except that I would want to short GLD, for simpler hedging.
 
I wouldn't use options for this. You're better off buying the physical coins for such a strategy. The ratio has stayed below 1 for a really long time in the early 1980's. It got below 0.8 in fact!

Here's a chart from "Historical Charts of Interest":

Platinum to Gold ratio
 
Quote from fickletrader:

I wouldn't use options for this. You're better off buying the physical coins for such a strategy. The ratio has stayed below 1 for a really long time in the early 1980's. It got below 0.8 in fact!

Here's a chart from "Historical Charts of Interest":

Platinum to Gold ratio
More...

I doubt if I should feel pessimistic with that chart. First, it shows that for most of the time, platinum is way higher than gold price. The fact that it deeps below gold during the early 80's is probably because of the reduction in industrial use(notoriously in catalytic converters) during recession.

But thanks to you though for pointing out that Pt CAN stay below Au for extended period. So I agree that holding physical Pt is a good way because it at least eliminate the fees and -ve roll yields that's associated with ETFs and futures. To that end, I just shifted to holding PPLT and may consider getting coins instead (though I doubt the premium for phys is too high to make sense compared to holding PPLT)

In addition I think using GLD as the leg for shorting Au is appropriate because:
1. Being in paper, GLD naturally carries some counter party risk
2. Seeing what happened to silver when a paper metal go parabolic up and then got crushed by margin increase
3. Available option trading for hedging its continuous up against Pt
 
I decided to use PPLT instead of PTM as the leg for long platinum.

sold 83 of PTM @ 20.95 (realized = 26)
bot 10 of PPLT @ 177.38
 
Do you still think such a trade is viable in this time? last night I saw gold falling more than $100 and Pt fell even more!

I also agree with you that on the grand scale, pt is going to be more expensive than gold, but do you think the pair trade can be entered now or it is better to wait for something like the 0.8 pt/au ratio to occur again.
 
Given that the economic situation will probably get worse before it gets better, I'd wait a while before putting on this spread. I'd like to see what the ratio is once Greece defaults and markets (potentially) crash in October.
 
Quote from Ghost of Cutten:

Given that the economic situation will probably get worse before it gets better, I'd wait a while before putting on this spread. I'd like to see what the ratio is once Greece defaults and markets (potentially) crash in October.
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Thx GoC, I was actually also reading ur threads the other day. I carried out this pair trade several times before the -70 spread happened last Friday, and my entry point was -24. I trade thru future, long 1 dec gold, and short 2 Jan pt. What I think I will do is to put more cash in account to cope with the potential -300 spread. I will probably exit the trade if the spread gets narrow next week.

What stop loss level would you say?
 
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