Hedge it so you don't have to sell it

The reason to hedge something you love is so you don't have to sell it.

I come back to that one a lot.

Gold's a long-term allocation for me. Structurally, I've got no reason to be out of it. But when the short-term price action goes parabolic, the odds of a pullback go up, and sitting there doing nothing isn't much of a plan either.

Selling it would mean giving up a position I want for years because of a view I have for a few weeks. Those two time frames don't really belong in the same decision.

That's what the hedge is for.

You keep the position and lean against it for a few weeks. Part of that lean is a call sold above the market.

Then one of two things tends to happen.

If the consolidation you thought was likely turns up, you take the money out of the hedge and go back to being plain long.

If it just keeps ripping, that call means you get taken out of a bit of your position, at a price you were happy to sell at anyway. The rest carries on working for you.

Either way, you still own the gold.

That's the bit I like. Both outcomes are ones I can live with, and neither of them needed me to call the top.

Options let you have an opinion about the next month without having to act on it with the whole position. For longer-term holders, I think that's probably the most useful thing they do.

How to lean against something you hold long-term without selling it is part of my framework.

This framework is revealed during 60 minutes, linked below.

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