035. PIGGISH PLAY - Long Royal Gold Inc. (RGLD)Royal Gold Inc. is now positioned for the holy grail of bullish baggers. The bags on this trade are so big that I had to steal a pot from some greedy leprechaun in order to fit all the potential gains in one location. For a visual perspective of the potential gainz on this trade, see the upper-right-hand part of the chart for the 'Pig Pot'.
I also sometimes keep weed in there, so please leave that bag alone/let me know if you happen to find it.
I. Fundamental Briefing:
This will be the second Pig Play in a row where I touch upon the fundamental situation of the underlying company's financials. I usually prefer to keep it technical because that is the only moral basis to take a trade. But the fundamental picture needs to be addressed for RGLD because it is actually undervalued. That's right - in what must be the frothiest market in American history, we have ourselves a SEVERELY UNDERVALUED stock that just released a heroic quarterly report. Not only is this company operationally best-in-class, but it just cleared the remainder of its payable notes while also securing an enormous line of credit, if needed. This is an important detail because it hints at a potentially aggressive strategy with acquisitions and property expansions galore. For those less acquainted with the precious metals industry, there is a particular category of company that operates as a collector-of-sorts, whereby it simply takes a royalty from operations on the properties it owns. These properties are usually large plots of land that contain one or multiple mines that are available for digging by the mining companies that have a contractual right to do so. Once the refined product is sold to third-party retailers (presumably by the mining companies, but could be other parties at times), Royal Gold proves its namesake by collecting a royalty at the time of sale.
Aside from Royal, the other major royalty player in this space is Franco Nevada, which I also personally like, but is not nearly as undervalued as our guy here. The bottom fundamental line is that it's great! If you want to know more or don't believe me, take a glance at their latest quarterly numbers and guidance for 2022.
II. Technical Picture:
Much like what RGLD does, I have discovered the locations of the largest mines in the chart and identified them as such. The geometric form on the left side of the chart is a rather complicated arrangement of triangles and circles that are drawn to form golden rectangles and other such sacred angles. This sort of 'geometric' style of technical analysis is both difficult to teach and actually use for accurate projections. It is not a set of techniques that is practical to use intraday because of how time consuming it is to get precise projections. In any case, I have manipulated and contorted a few of the angles and distances to project out where the bullish and bearish landmine hits are likely to occur in time and in price.
It just so happens that there are a string of harmonically-spaced LANDMINES set to explode in perfect order in the days and weeks to come. I will say that I've never seen such a perfect array of bullish line extensions like this and am very excited to buy and hold and do nothing for once. For the record, its laughable that people actually brag about their success with this strategy when there is legitimately nothing to it - especially if it is an alt-coin.
To wrap this up before the opportunity disappears, the reason why this is so special is because there is a very high chance that you can use short-term options like you would any run-of-the-mill pure equity play. That is, between the dates of ~ February 11th and July 18th, there is hardly any resistance that will cause this move much trouble. If anything, it might delay the inevitable continues rally to 150+, but that can be easily dealt with by having the right options strategy (see next section).
III. Pig Spec's and Other Entry Details:
Unlike most of my plays, this one has farther-spaced contract expiration dates. There are only 4 to choose from between now and July 18th. They are as follows:
a) March 18th
b) April 14th
c) June 17th
d) July 15th - (its as if the makers know about the July 18th cutoff)
The way I am going to play this is to distribute all of my allotted capital to the April 14th expiration. That is, 100% of the capital is going toward three different strikes, all for April 14th. I am going to enter these three strikes tomorrow, see below for details:
BUY LONG CALLS ON RGLD (80% of Total Capital)
BUY LONG CALLS ON RGLD (20 % of Total Capital)
That is all for now, see reasoning section below for strategic explanation.
IV. Options Strategy Explained:
The way I would like to play this is to mimic the process of buying and holding equity with the expectation of higher prices and steady gains. This is mainly because of the very low probability that the stock trades below 115 for the period between now and mid-July. I am making this assumption based on some of the characteristics of the particular geometric structure of the chart and the timing of the major underlying trends in precious metals.
As far as strike selection goes, 110 is an extremely safe level from here on out. As it stands today, the premium structure is such that you can pay proportionately the same for the 115 and 120 strikes without incurring an additional cost for this safety. This deal exists for the 4/14 110 strike, but it will not last, so I advise entering swiftly at some point during the trading day tomorrow. The only barrier for this strike is the higher cost per contract, which is why the saying goes, "it takes money to make money." Still, with the protection it offers in this spot, Id much prefer to own half the number of contracts with less than a quarter of the implied risk.
To this last point of having to tradeoff between safety and number of contracts owned - the solution lies in the remaining 25% of allotted capital going towards the much more aggressive 130 strike for the same expiry. While I say "aggressive" with a straight face, it is a little comical to call it as such given some of the other plays I've made in the past. The point is that this trade is golden and proof of this lies in how un-aggressive the aggressive portion of the position is.
Unlike the SBUX play, this one is slower and more methodical and may last until mid-July. Therefore, I do not foresee making many changes to the above setup, in terms of the options held. I will provide an updated plan around mid-March depending on how much RGLD moves from now until then. Otherwise, I will not provide mid-play guidance for this one, unless something extremely strange happens where gold gets outlawed or something in the next couple of months.
America has outlawed gold before, so it wouldn't totally shock me. Sort of kidding, but whats great is that it represents the biggest risk that I can see with this trade.
= Bagz Galore
-King-Pig
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COMEX:GC1!
MCX:SILVER1!
AMEX:GDX
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