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Options Plays for Gold & Silver in 2012


Nevermind the headlines, at this point in China's development there are simply too many citizens accustomed to middle class living for the Chinese economy to dive into a full-blown recession no matter what investors think. This according to James Cordier, the principal and founder of Liberty Trading Group.

Cordier thinks the weakness seen in commodities towards the end of the year was more a statement on investor skittishness than a function of fundamentals. Despite it's special place as a "precious" metal, gold is no exception. Cordier says gold's nearly 20% decline wasn't a signal to exit but another buying opportunity before the next leg of the Great Gold Bull.

Commodities in general are "too overcrowded, especially in gold." Citing the $90 one day drop in gold during December as being the result of a "whim" Cordier says "January will be a great time to get long precious metals!"

Cordier's thesis hinges not just on Chinese GDP staying on the happy side of zero percent, he's also looking for a "decent" resolution to Europe; two presumptions that will give many investors pause. If they don't, Cordier's strategy for taking advantage of his forecast might. He's selling silver puts "with both hands" at a strike price of $17.

For those new to the game, a short put play means Cordier thinks the panic is overdone (making the cost of each put too high) and that silver will stay above $17. If Cordier is right he'll make close to 100% on his position. If he's wrong his losses could be, well, let's just say there's a reason you have to sign waivers before your broker lets you trade options.

That said, when used properly options can be a good strategy for kickstarting your portfolio. For the more conservative types playing metals, the ETFs are relatively safe. Either way, let us know what you see happening in commodities in 2012 and how your playing it in our comment section below.