Bulls excited for a hoppin’ 2016 should hit the snooze button and go back to bed. Unless a sharp recovery commences immediately, we’re looking at one of the worst starts to the year in more than a decade.
And yet, not everything is crashing. Commodities, for once in their life, are actually receiving some love this morning.
Gold in particularly looks perky. Investors are fleeing into the perceived safety of the yellow metal … nevermind that gold has treated its owners like dirt for multiple years. Such details matter little to those seeking shelter from a crashing market. They’ll realize their mistake soon enough if the SPDR Gold Trust (ETF) (GLD) doesn’t change its tune.
But let’s give it a chance. Perhaps GLD made a new years resolution to not suck for once.
On the technical front, the gold ETF is looking a bit more constructive these days. GLD based out nicely over the holidays slowing the momentum of its downtrend. The 20-day moving average has bottomed out nicely and is now rising. So consider the short-term trend successfully reversed.
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And the long-term trend? Well, let’s take this bottoming attempt one step at a time, shall we? Much work remains before GLD stock looks anywhere near bullish on a larger time frame.
Today’s volatility surge in the gold ETF provides an actionable opportunity for bulls and bears alike. Consider these twin trades for GLD. One is bound to be golden. And maybe even both!
Twin Trades for GLD
Skeptics of today’s GLD pop can use the rally to sell February bear call spreads. Implied volatility is ticking up modestly, increasing option premiums. Sell the Feb $108/$112 call spread for 44 cents or better. The max reward is limited to the initial 44 cents and will be captured if GLD stock sits below $108 at expiration.
The max risk is limited to the distance between strikes minus the net credit, or $3.56, and will be lost if the gold ETF rallies above $112 by expiration.
If you’re a believer in the GLD rally consider playing with the bulls by selling Feb put spreads. Sell the Feb $99/$95 bull put spread for 44 cents or better. The max reward is limited to the initial 44 cents and will be captured if GLD stock sits above $99 at expiration.
The max risk is limited to the distance between strikes minus the net credit, or $3.56, and will be lost if the gold ETF sits below $95 at expiration.
As of this writing, Tyler Craig owned short call and put spreads on GLD.
