The exchange-traded fund SPDR Gold Shares (NYSEARCA:GLD) is a bit less precious these days after a swift sell-off in the metal. Nevertheless, for gold bugs and bullish, contrarian swing traders, the price action makes a compelling case for a speculative, limited-risk options spread in GLD. Let me explain.
When the majority of analysts and bloggers are bearishly prognosticating with dire warnings such as broken technical support in Comex Gold or gold’s ‘easy money’ Central Bank support as having peaked, it’s bound to get my attention and help me anticipate that a bullish trade in GLD could be developing.
And that’s more or less what’s occurred over the past couple sessions in gold and the GLD ETF.
Not helping matters, there are also plenty of furrowed and sweaty brows anxious over strength in the U.S. dollar and how that relationship invariably acts as a drag on the precious metal.
Lastly, there’s the September’s jobs report on Friday. Chatter is increasingly focused on how the data will confirm the Federal Reserve (finally) means business come December. And a rate hike of course, will be the final straw for GLD bulls! And so the story goes.
On the flipside, media narratives such as “lower for longer,” elevated geopolitical anxieties and pandemic financial disruptions are on the back burner with the switch set to simmer. The good news for gold bulls is that’s when GLD typically decides to ignite higher!
GLD ETF Daily Chart
When I look at the daily chart of GLD, I’m reminded of the words, “there’s always a line somewhere.” It’s a bit of a double entendre, but the point is gold bulls still have a plethora of technical-inspired price lines to convince themselves this is a good investment.
As of Wednesday’s close, GLD has filled its bullish Brexit gap while testing the 62% retracement level from the June pivot low. Not too far below that is the long-term 200-day simple moving average support line.
GLD is also oversold based on its Bollinger Band penetration and stochastics.
At the end of the day, bullish or bearish, this ETF has made a habit of warning traders not to wait for momentum to build prior to entering a position in one’s chosen price direction. And given what’s been said, the expectation is for a quick snap back to the upside in gold.
GLD Bullish Weeklys Vertical Strategy
For like-minded traders interested in a bullish, short-term swing trade as others panic, the GLD weeklys Oct 7 $121/$122 call vertical is attractive.
Priced for 10 cents with GLD at $119.39, the limited-risk spread can return 90 cents in less than two trading days if gold simply manages to rally 2.2% through expiration.
Our view is the required move is certainly reasonable given what’s been addressed technically and anecdotally. Bottom line though, this limited-risk position is a bit more speculative, as it expires Friday afternoon following that morning’s jobs report and emphasizes that “timing is everything” with this trade.
Investment accounts under Christopher Tyler’s management do not currently GLD or the derivatives mentioned in this article, but positions may change at any time based on market conditions. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
