GLD: A Golden Opportunity Approaches

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The recent price action in the SPDR Gold Trust ETF (NYSE:GLD) has been much ado about nothing. For all its fury, the erratic up and down gaps of the past two months have done little to knock the yellow metal from its perch at $154. Of course, this type of behavior isn’t all that different from recent movements in the equities market. The S&P 500 Index has also traveled a circuitous path to nowhere.

From a price pattern perspective, GLD broke out of a symmetrical triangle in early May around the $158 level resulting in a swift free fall to $150. Yet, after the brief drop, GLD transitioned back into a sideways range. As is often the case with the morphing nature of chart patterns, a symmetrical triangle has given way to the formation of a much larger descending triangle.


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The recent noncommittal directional nature of GLD has done little to attract option buyers. In fact, the gold VIX (GVZ) — which many traders use to gauge the demand for GLD options — is down 27% since June 1. If implied volatility for GLD options can continue to come in, option buyers may be presented with an opportunity to snatch up overly cheap options.

Those with a directional bias could simply buy a call or put, while those looking for a pure play on volatility may consider purchasing both via a long straddle trade (i.e. buy the Aug 154 call and the Aug 154 put).


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If we can get the GVZ to dip back beneath 16% before GLD breaks out of its multi-month descending triangle, it could also set up an alluring backdrop for the that long straddle play. If a GLD breakout gives rise to a strong directional move, the long straddle play should come out a winner.

This particular setup will likely require a bit of patience before pulling the trigger. Nevertheless, I suspect the time that implied volatility tips in the favor of option buyers is close at hand.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2012/07/gld-a-golden-opportunity-approaches/.

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