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Use Gold to Foil the Crisis Summer

GLD ETF and VIX ‘Fear Gauge’ profit as market sinks

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Another options trading strategy from InvestorPlace.

Gold-barsThis summer is shaping up to be a time of “negative catalysts” only – the federal debt ceiling crisis, the ongoing drama in Greece and with European banks in general, a softening economy with falling home prices and rising unemployment. Good stuff, eh? Yes, if you play it right.

There are almost too many ways to play a choppy summer and timing the ups, downs and insanity of politicians is impossible. So play the market itself.

Say what? You mean, play the S&P or NASDAQ indices?

No — that’s a sucker’s game.

You mean, play the banks and the home builders, the industries in the thick of this summer’s news and trading action?

No — those are long-term short positions, not something to trade at this time.

I mean play uncertainty — both in the real world and the market. Real world uncertainty means gold; market uncertainty means the CBOE Volatility Index (CBOE: VIX).

First, gold. The SPDR Gold Trust (NYSE: GLD) is the exchange-traded fund for gold and like the precious metal it has been stuck in neutral for quite a while.

Do you agree with me that — 1) Greece will eventually default in some fashion and — 2) politicians here will kick the can down the road on real measures to fix structural deficits and the rising debt? If you agree, the long-term play is gold, and you can play it three ways:

  • Play the metal straight up and buy GLD.
  • Play the metal straight up with some risk; buy the GLD Jan 2013 LEAP options at the $165 strike price. That means you see a 10% gain the commodity and are willing to invest in the option premium for the next 18 months.
  • Buy GLD and sell covered calls against it. You can choose from the options that expire Weekly, as they are called, and the regular monthly expiration options. Use the proceeds to average down your position.

Please go to page 2 for more of “Gold Foils the Crisis Summer.”

Article printed from InvestorPlace Media,

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