July 16: Buy Sensex, Sell Gold
Buy Sensex (or Nifty via NIFTYBEES) and sell gold (short GOLDBEES - in theory - or short a gold future).
A long position on the Nifty future would be up 17% (Sensex up 19%). A short position on gold would have made 6.5%. That’s a total return of 23%+ in a week.
Today (Aug 5): Nifty future @ 4530 (up 18% from July 16) and GOLDBEES @ 1214 (down 11% from July 16) - that’s a net return of 29% over 3 weeks.
As for exits, here was my plan:
Book partial profits.
Exit the whole position if the Nifty crosses 4600 and/or gold drops below 12000
Note that with the sharp correction underway in crude oil and industrial metals, gold has also dropped quite a bit, and the GOLDBEES gold ETF is close to breaking below 1200.
This was an example of a ‘low frequency, high probability’ trade; one which does not set up too often, but when it does, has a very good chance of working out (and relatively less risk).