Gold bugs rejoice! The long, harsh winter ravaging precious metals is finally ending.
Investors still standing after the four-year, 43% swoon now have the pleasure of participating in what could be a new bull market. While it may not be as glorious as the last one, it will certainly be a welcome change from the seemingly endless onslaught of pain and loss plaguing the SPDR Gold Trust (ETF) (GLD) for all these years.
With the tides turning in the land of the yellow metal, it’s high time to consider some bullish trades on GLD. The kind that provide a boatload, nay, a mine full, of glorious greenbacks should the gold recovery really go the distance this year.
By tapping into the leverage potential of the options market, we can build a possible triple-digit trade, even if GLD only rises 5% to 10% higher in the coming months. More on that in a moment, but first, let’s build the bullish case for gold using the only variable that matters — price.
GLD Stock Charts
We begin with a weekly chart of GLD to chronicle its crushing captivity along with its recent rescue. The string of failed rallies ended this year when buyers finally brought out the big guns. Amid a flurry of buying activity GLD breached the descending trendline that has defined its confinement since 2013.
With the weekly trend now pointing higher, any and all dips should be viewed as gifts from the gods — buying opportunities bursting with potential.
Subscribers to the Elliot wave theory are pointing out the possibilities for a new five-phase impulse wave taking root in GLD. The two-month rip that carried GLD from $100 to $120 was the first wave.
The current pullback is wave two. Next comes, you guessed it, wave three. And in Elliot wave theory, the third wave is the biggest. The kind that showers profits on shareholders. A wonder to behold.
Of course, there aren’t any guarantees here, but the action in gold has thus far followed the blueprint nicely, so here’s hoping a glorious wave three arrives to carry the shiny stuff into the stratosphere.
GLD: Quench Your Thirst for Profits
Here’s a trade providing maximum participation in gold’s next advance, while keeping the cost low. Buy the July $118/$128 call spread for $3. The trade consists of buying to open the Jul 118 call while selling to open the July $128 call.
The max risk is limited to the $3 paid at trade entry and will be lost if GLD sits below $118 at expiration. The max reward is limited to the distance between strikes minus the initial debit, or $7, and will be captured if GLD can rise above $128 by expiration.
By risking $3 to capture $7, the vertical spread offers a 233% return potential. Lovely.
At the time of this writing Tyler Craig had no position in any of the aforementioned securities.
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