An Options Trade That Wins No Matter What Direction Gold Moves

Over the next several weeks, investors will be heavily focused on any news or data which could impact the timing of future interest rate increases. Almost nothing moves the financial markets like major interest rate news.

For a change, we could have new market-moving info on our hands for the first time in many months.

You see, the Fed originally had a plan to increase rates three times in 2017. Their thought was the growing U.S. economy could sustain three small rate increases. The purpose behind these increases is to keep inflation from increasing too high or too quickly. (Two of the three increases have already happened.)

However, recent economic data suggest inflation isn’t of any real concern right now. In fact, it may even be too low (a topic which always sparks a ton of debate).

The key is, the Fed wants to avoid deflation at all costs, even at the risk of inflation rising too quickly. So, with inflation concerns shelved for the moment, the Fed may not have a reason to raise rates just yet. It’s even possible we won’t see another rate hike in 2017.

As you can imagine, whether or not the Fed raises rates again in 2017 is a big deal to short-term investors. That’s why every bit of news from the Fed and any major economic news will be analyzed ad nauseam for clues on when the next hike may occur.

Here’s the thing…

The timing of the next rate increase could have a major impact on the price of gold. As an alternative currency, gold prices will move quite a bit based on what US interest rates do. As such, there’s reason to believe gold could be more volatile in the coming weeks (and maybe months).

At least one big trader believes gold miners could be impacted heavily all the way until next year. Of course, gold miners move pretty consistently with gold prices. And, this trader just spent a pile of cash betting miners as a group will be far away from current levels by this time next year.

More specifically, the trader purchased a large strangle in the VanEck Vectors Gold Miners ETF (NYSE: GDX) expiring in June of 2018. A strangle consists of an out-of-the-money call and out-of-the-money put purchased simultaneously in the same expiration period. In this case, with the ETF at just over $22, the buyer purchased the 18 put and the 30 call. That’s a very wide strangle for such a low underlying price. In fact, with the cost of the trade at around $1.50 per strangle break-even points are all the way at around $16.50 and $31.50.

The strangle buyer clearly believes the next year is going to be volatile for gold and gold miners. The trader purchased 9,300 strangles, so is spending nearly $1.5 million on this trade. In other words, this is no idle bet.

Given what’s going on with interest rates, it doesn’t surprise me that at least one big trader is betting things are going to get interesting with gold over the next year. However, if you believe gold is going to move, you could take a more direct and shorter-term approach.

For example, the SPDR Gold Shares ETF (NYSE: GLD) looks like it could easily be on the verge of a big move either direction. This direct play on the price of gold could also be a good choice if you believe the precious metal is going to move in the next several weeks instead of months.

As of this writing, you could purchase the September 1st (of this year) 116.50-119.50 strangle in GLD for about $2.00. That’s bit more expensive than the GDX strangle from earlier, but it’s far closer to the money. Break even points would be at $114.50 and $121.50 – both very reachable levels in the next month if any economic surprises occur.

5 Wealth-Building Income Stocks for Double-Digit Growth

At the start of each new quarter, there is a group of companies that announce their next dividend payments well before the actual earnings results. I look forward to these press releases, as they are proof that my income stock portfolio is providing me with a “pay” increase every quarter.

My Dividend Hunter philosophy and investment strategies focus on building a dividend income stream. If your stocks pay stable and growing dividends, the share prices are not the focus. If dividends grow, the share prices must at some point follow.

Master limited partnerships (MLPs) are companies that provide infrastructure assets and services in the energy sector. The market often links MLP values with energy commodity prices, typically the value of crude oil. However, most MLPs have fee-based business models providing essential transport, storage, and terminal services to the full range of energy producers, processors, retailers and end users.

The best MLPs have business operations and client relationships that allow them to increase the distributions paid to investors every quarter. It is about the time in the new quarter that the dividend increase announcements start to hit my e-mail inbox. I look forward to reading about how much of a pay raise my income stocks are giving me every quarter.

We are still early in the distribution announcing season, but already there has been some strong growth numbers. Here are five companies with distributions rated at “No Risk of Distribution Cut” by (subscription required) and companies that investors can expect to continue their trajectories of dividend growth.

Magellan Midstream Partners, L.P. (NYSE: MMP)primarily provides refined energy products pipeline and terminal services. Magellan has now increased its distribution for 61 consecutive quarters. The new distribution is 2% higher than last quarter’s payout and up 9% compared to one year ago. MMP yields 4.95%.

Phillips 66 Partners LP (NYSE: PSXP) provides pipeline, storage and terminal services for its sponsor company, crude oil refiner Phillips 66 (NYSE: PSX). The new PSXP distribution is up 4.95% over last quarter and has been increased by 21.8% over the last year. The units yield 4.5%.

Valero Energy Partners LP (NYSE: VLP) is another refiner sponsored MLP, providing similar services to Valero Energy Corporation (NYSE: VLO). VLP just increased its dividend by 6.4% and the new rate is 24.6% higher than the rate paid a year ago. VLP yields 3.7%.

Antero Midstream Partners LP (NYSE: AM) provides natural gas gathering and water treatment services to its sponsor, Antero Resources (NYSE: AR), a natural gas exploration and production energy company. The AM distribution was just increased by 6.7% and is up 28% year-over-year. The units yield 3.7%

Tallgrass Energy Partners LP (NYSE: TEP) owns and operates both crude oil and natural gas interstate pipelines and the terminals where the oil and gas get on and off those pipelines. Since its 2013 IPO, Tallgrass Energy Partners has one of the strongest distribution growth records in the MLP space. This quarter the payout was increased 10.8% over the previous quarter. The distribution is up 22.5% over the last year. TEP yields 7.2%.

These growing distribution MLPs can be great buys when the market is slow to price in new distribution increases. Over the last few months, MLP values have been tracking down with crude oil. Yet the numbers above show that revenues and cash flow continue to grow. These MLPs report tax information on IRS Schedules K-1. These tax forms add some work at tax filing time and generally make these investments a poor fit for IRA and other tax advantaged accounts. I show my Dividend Hunter subscribers some comparable 1099 reporting alternative energy infrastructure investments that have great distribution growth and income potential.

Turning your retirement savings into a consistent stream of income is no easy task. You might spend hours researching what stocks to buy, only to end up with three seemingly attractive stocks like the three above.

There are thousands of stocks to choose from, but only a small percentage of that group are the right stocks for you to own. The best high-yield stocks need to have safe long-term businesses that print money every year no matter what the market does. Those are the only companies that can pay consistent dividends.

That’s a tall task for most companies, and unless you have a degree in finance or worked on Wall Street, picking the best companies to own, out of all of the other ones, is an extremely difficult task.