In this article I explain why the ultimate inflation hedge is not gold, silver, gold miners, silver miners, commodities, silver options, or options in miners.
It’s actually 2016 GLD $225 call options, with a risk/return of a whopping 1379:1. That means for every $1,000 you put in, the risk is $1000, but the return is $1,379,000.
Talk about the ultimate inflation hedge.
Here’s an excerpt:
Go to the GLD 2016 calls and the farthest strike out is $225. Assuming a quintupling of gold in a two-year time frame (either from January 2014 or January 2015, as 2017 LEAPS in GLD will also be available come November) that puts GLD at roughly $625. $225 LEAPS on GLD are currently available for 29 cents, and only 6,688 contracts have been traded. Compare that with SLV’s 55,000 and this trade seems extremely neglected.
If GLD quintuples in two years, that puts the options at $400 a contract, for a return of 1,379-times, or an astronomical 137,800%. Meaning, for every $1,000 you put into 2016 or 2017 $225 GLD LEAP options, you will have $1,379,300. That is nearly twice the return on SLV LEAPS, putting the risk/return ratio at 1379:1, and that already takes into account that gold is generally half as fast in rising as silver.