Trade of the Day: SPDR Gold Shares ETF (GLD)

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I have been warning my Momentum Options members about the continued weakness in gold and silver for several weeks now following the break below the 200-day moving average in October. Gold was above $1,140, and silver was near $15.50 an ounce coming into the month, but both have crashed hard below their 50- and 100-day moving averages.

Gold ($GOLD) is testing its summer lows and is in danger of breaking below $1,000 — dare I say — this year. With the major moving averages in torpedo mode, they aren’t likely to level out anytime soon.

The longer-term, 10-year monthly chart shows that, if the $1,000 level cracks, there would be risk to the $900-$800 level, which is where I would start backing up the truck.

In the meantime, I often profile the SPDR Gold Shares ETF (GLD) as a way to play bullish or bearish moves in the yellow metal, and I have added both near-term and longer-term bearish option trades to my Watch List.

The GLD December 100 puts (GLD151218P00100000) look attractive at current levels around $0.90 to play a continued near-term pullback. The GLD December 99 puts (GLD151218P00099000), trading around $0.75, could also be used, and they are slightly “cheaper.”

To play a possible drop towards $900 into next year, I like the GLD March (2016) 95 puts (GLD160318P00095000), which are going for about $1.20 as of this writing. These options look tempting, as they would allow another five months for a continued breakdown in gold. The risk/reward ratio of this trade could reach nearly 5-to-1 if GLD shares test $90 by March 2016. If so, the puts options would be $5 “in the money.” The open interest in these options is over 3,000 contracts, which shows that traders are taking protection or looking to score big.

The chart for GLD mirrors that of gold. The near-term chart shows risk to $100 over the near term, with all of the major moving averages in a massive downtrend.

The longer-term chart shows that, if GLD falls below $100, there is a good chance that $95-$90 and possibly $80 come into play.

Last week’s pullback looked nasty and could get worse if there is no rebound to start the week. If the market closes lower today but backup support levels hold, it could be the start of a bottoming process. However, if volatility stays elevated and there is continued weakness, I may have to start looking for a few bearish trades.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/trade-of-the-day-spdr-gold-shares-etf-gld/.

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