Thursday, September 17, 2009

GLD-C1- a proxy for gold

Continued weakness in the USD as well as rumored buying by Chinese central bank have propelled gold above the USD1000 level again. This has led to major gold producers such as AngloGold Ashanti & Barrick Gold Corp. to further unwind fixed-price bullion contracts- a practice commonly referred to as de-hedging.

From Chart 1 below, we can see that gold has broken to the upside of the 'ABC' triangle & is now poised to challenge the horizontal line resistance at USD1000-1030. A convincing break above this level will be very bullish for gold. However, a failure to break above this level could set the stage for a bearish triple top reversal. This is a very interesting time for gold bug.


Chart 1: Gold's weekly chart as at Sept 16, 2009 (Source: SuperCharts by Imega Research)

One of the ETFs that invests in gold is SPDR Gold Trust ('GLD'). The chart for GLD is given below.


Chart 2: GLD's weekly chart as at Sept 16, 2009 (Source: Stockcharts.com)

For those who are interested to trade the possible breakout in gold & GLD, you do so by buying GLD-C1, a CW based on GLD. The main terms of GLD-C1 are:

1. Expiry Date: April 7, 2010
2. Exercise Ratio: 400-for-1
3. Exercise Price: USD88.50

GLD-C1 was issued at IPO price of RM0.15 and was quoted on our exchange on July 8 this year. Based on the closing price of GLD of USD99.91 [as at Sept 16] & GLD-C1 of RM0.17 [as at today, Sept 17] & an exchange rate of USD1=RM3.48, GLD-C1 is now trading at a premium of 8%. That's quite reasonable.


Chart 3: GLD-C1's daily chart as at Sept 17, 2009 (Source: Quickcharts)

In conclusion, you can consider a trading BUY on GLD-C1 if gold were to convincingly break above the USD1000-1030 level.
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9 comments:

  1. JRTuesday, September 22, 2009 10:29:00 AM

    Dear Mr.Alex,

    Would apperciate how 8% premium was derived ? I managed to get 6%.

    Also how do I get more information on this warrant ie issuer, warrant type? The information provided in online trading platform is limited.

    Thanks a lot.
    Best Regards
    Jonathan.

    ReplyDelete
  2. chee_yTuesday, September 22, 2009 3:11:00 PM

    Hi Alex,

    I'm also very interested to know how 8% premium is derived :)

    A newbie is learning here

    ReplyDelete
  3. Alex LuFriday, September 25, 2009 4:10:00 PM

    Hi JR,

    The formula that I have used is
    = (EP + CWP - UP) X 100/UP
    where EP = Exercise Price of CW; CWP = Closing Price of CW; and UP = Closing Price of Underlying Security. EP & UP have to be converted from US Dollar to Malaysian Ringgit. I still get 8%.

    For information on the terms & conditions of Structured Warrant, go to the link below.

    http://www.bursamalaysia.com/website/bm/listed_companies/structured_warrants/securities_profile/index.jsp

    ReplyDelete
  4. Alex LuFriday, September 25, 2009 4:11:00 PM

    Hi White Ace Creative,

    See my earlier comment.

    ReplyDelete
  5. chee_yFriday, September 25, 2009 4:12:00 PM

    Thank you very much :)

    ReplyDelete
  6. solomonFriday, September 25, 2009 8:26:00 PM

    Today, the GLD-c1 reaches 13.5 cents.

    I will enter at the end of OCT or early of NOV, hopefully I can get below 10 cents. Hold for a month and see.

    Have luck.

    ReplyDelete
  7. Ernest KatTuesday, November 24, 2009 10:37:00 PM

    This comment has been removed by the author.

    ReplyDelete
  8. Ernest KatTuesday, November 24, 2009 10:39:00 PM

    great work here..however there seems to be am error with your math formula regarding the premium calculation for GLD-C1 imho.. like JR i also derived the premium to be 6% ...

    Isnt this the correct formula?

    Premium for Call warrant
    =
    [(Warrant price x Exercise ratio) + Exercise price] - Underlying price /Underlying price

    where every variable here is converted back to RM from USD

    maybe im wrong..your thoughts appreciated.

    ReplyDelete
  9. Ernest KatTuesday, November 24, 2009 10:52:00 PM

    as of today the valuation is even more compelling as Gold has rocketed to 1167 and GLD is 114.65, 1USD= RM3.3775 at the time of writing this:

    {[(.24 x 400 )+ 298.908]-387.2303}/387.2303= 1.9% with roughly 4 months to expiry...GLD-C1 is tradeable.

    ReplyDelete