In my recent article, The Next Step for Gold I laid out a thesis for rangebound action coming home to roost in SPDR Gold Shares (NYSE:GLD).  Rather than treat this as an overly bearish development, I suggest it’s a necessary step for virtually any security in the midst of a multi-year bull market.  Consolidation allows for the digestion of gains, the absorption of supply (short-term profit taking), and finally, the building of a base for yet further upside.

While sideways price action is likely a non-event for adrenaline-ridden directional speculators, it is the main event for those with more of a neutral disposition.  And when it comes to weapons of choice for these neutral crusaders, none is more popular than the strategy known as the “iron condor.”

The strategy is generally used by traders that have a neutral outlook on a stock. It’s constructed with two separate option “strangles” by buying or selling a call option and put option with different strike prices.

Though the potential for some churning in the gold space may have caught the attention of your garden variety condor player, the current volatility setup also adds to the appeal.  Take a look at the implied volatility chart below provided courtesy of MachTrader:

Though implied volatility has come off its highs, it’s still higher than it’s been in quite some time.  Think of it this way: The recent two-month binge on Big Macs and fries has elevated GLD option premiums to fat status. Just because they went on a one-week diet and dropped a few pounds doesn’t negate the fact that they’re still way fatter than days past.  Fortunately for condor enthusiasts, fatter premiums mean wider profit zones and higher net credits.

October condors may be ripe for the picking.  To structure a wide, high probability condor, traders may consider selling the 156-151 put spread and the 200-205 call spread.  Check an option chain for current prices.

At the time of this writing Tyler Craig had no positions on GLD.