Weekly Spread Re-Cap
Sunday, March 13, 2011 at 5:16PMA few spreads in our book made sharp movements this week. The first, 4*GLD – 9*GDX, closed last week at 13.80. Yesterday afternoon it traded in the high 30’s. We like to trade whenever we see such a large move, especially given the fact that very little has changed economically in the past week to justify such a jump in the price. Additionally, the spread looked rich relative to its six month average price of 13.15. We sold a small amount at 37, leaving room to add more if it went against us. This morning it briefly traded at about 43 before drifting down to 32 at the time of this writing. We will look to unwind in the mid 20’s.
Two other spreads worth noting are 5*USO- 3*XLE and 3*USO- 2*XOP. Unlike GLD-GDX these spreads do not fluctuate wildly in such short periods of time. They tend to move in one direction for long periods. We’ve been long both of these for a few months now and have watched them slowly move against us. That recently changed. Both spreads bottomed on Feb. 16th, with USO-XLE closing at -50.20 and USO-XOP closing at -12.15. These spreads sharply reversed direction at the beginning of the recent turmoil in the Middle East, and as of the time of this writing are trading at -23.15 and 4.30, respectively. Today they are down for the first time in over a week, which may be a buying opportunity.
Written for Bigger Capital by Norm Winer on 3/11/2011. Follow me on Twitter and StockTwits
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