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There are any numbers of ways for options trading investors to get on the gold bandwagon using exchange-traded funds or the individual stocks of the gold miners. The chances are good for a retest of 1450 basis June futures, so consider using a low cost strategy with enough time until expiration for gold to complete the expected retest and then turn higher once again.

The suggestions below are based upon last Friday’s closing prices using the mid price between the bid and ask. The option prices will be somewhat different due to the time decay over the weekend and any price change.

Gold Trade

Eldorado Gold Corp. (NYSE: EGO) explores and develops gold and iron ore properties in Turkey, China, Greece, and Brazil. They claim to be one of the lowest cost pure gold producers.

The stock has just broken out above 17 suggesting higher gold prices will result in higher earnings when they report on May 5. The estimate is .12 per share.

The current Historical Volatility is 36.28, with an Implied Volatility Index Mean of 37.00 up from 33.55 last week, for an IV/HV ratio of 1.02. Friday’s volume was 9,507 contracts compared to the 5-day average of 7,740 with an extremely bullish .09 put-call ratio.

Consider this bull call spread with an attractive 4:1 risk to reward ratio.

The maximum potential value of the spread is the difference between the strike prices less the debit or 2.80 ((22.50-19) -.70).

Use a close back below 17 as the SU (stop/unwind).

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Silver Trade

If the declining dollar is the force driving commodities, crude oil and gold higher then silver is sure to be included. Presuming it continues here is a trend continuation idea for a stock we have suggested several times recently.

Silver Wheaton Corp. (NYSE: SLW) operates as a silver streaming company. It has 13 long-term silver purchase agreements and 2 long-term precious metal purchase agreements where the company acquires silver and gold production from counterparties located in Mexico, the United States, Greece, Sweden, Peru, Chile, Argentina, and Portugal. It does not own or operate mines, but buys silver at below market prices and then resells it to major industrial companies at a markup.

The estimate for the next earnings report scheduled for May 9, 2011 is .40 vs. .13 a year ago.

The current Historical Volatility is 46.52, with an Implied Volatility Index Mean of 50.54, for an IV/HV ratio of 1.09 and a bullish put-call ratio of .36. Friday’s option volume was 94,686 contracts compared to the 5-day average of 70,130.

The call spread legs have a risk reward ratio of about 2.7 to 1, while adding the short put increases the risk in the event the stock is below 40 at the June options expiration. That increases the position delta and adds some volatility edge. At this price, the combination represents the equivalent of a 37 share long position. Use a close back down below 42 as the SU (stop/unwind).

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