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GAMCO Global Gold, Natural Reso Message Board

  • keltus1952 keltus1952 Mar 12, 2013 10:01 AM Flag

    GGN lagging gold, etc.

    Gold up.
    Oil up.
    GDX up.
    GDXJ up.
    even GNT is up.

    GGN down. Some outside factors influencing this stock the last 2 days.


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    • a) it isn't a stock, it is a fund that holds natural resource stocks and writes covered call options against the holdings.
      b) if you think about such funds, they do *best* when there is froth in the sector they work, but not
      break-outs. Lots of others may then buy the covered calls, pay nice prices for them, but have them expire worthless. (So GGN just keeps both their base securities plus all of the money from selling the calls).
      c) if the sector is boring, say in year 2 of an interminable consolidation pattern, then the prices paid for the calls are small, and the spreads are tight. A fund such as GGN isn't paid nearly so much for their risk, and as the hope dies that the sector will ever do anything, they become more and more at risk for a.....
      d) *breakout*. When the sector finally starts running up again, it is possible that many of the covered calls get exercised. GGN gets pushed out of positions (at a profit), but it is going to cost them well more than that profit to *reestablish* new positions.

      So a covered call fund performs differently in different types of market conditions. Breakouts are times of danger, and do not necessarily translate to good times for the fund. Our best times are when it seems like there might be a pop any day now, but it never shows up.

6.22+0.05(+0.81%)Oct 21 4:02 PMEDT