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This morning, I am recommending a bullish trade on SPDR Gold Shares (NYSEARCA:GLD).

Last week, when I recommended being cautious about your bullish trades, I cited three warning signs. The price of oil is down, interest rates are low and the price of gold is rising.

I’ve kept track of these three signs on the market, and because the price of gold seems to be staying above $1,300 per ounce, I think a bullish play is a good way to capitalize on the situation.

Protection From Uncertainty in Commodities

As I mentioned before, gold has jumped above $1,300 per ounce. It is still up by more than 4% since the end of May.

And if we look at the daily chart of gold prices, we can see that it is starting to form some support at around $1,320.

Daily Chart of Gold — Chart Source: TradingView

The beginning of a month is normally a bullish time because investors deploy new capital. The rise in the price of gold tells us traders are looking for protection in commodities rather than taking on more risk with stocks.

There is still a lot of uncertainty on the market. Even though the Trump administration called off the planned tariffs on Mexican goods, which should alleviate some pressure on the market, the price of gold is still rising. As long as traders are looking for certainty in gold, we can make a bullish play.

GLD Will Follow Gold Higher

If you look at the daily chart for GLD, which tries to match the performance of gold bullion, you see it formed a top at around the same level in both February and early June. That closely mimics the price of gold, which also formed tops around those times.

Daily Chart of SPDR Gold Shares (GLD) — Chart Source: TradingView

As long as investors seek safety from uncertainty in gold, GLD will rise. Since the resolution to the trade issues with Mexico doesn’t seem to have stopped the price of gold from heading higher, I think it will take a lot more good news to calm traders down.

There doesn’t seem to be an end to the trade issues between the U.S. and China in sight. Oil is still hovering above support at $50. Interest rates are still low. In this market, commodities like gold appeal to investors because of their stability.

We can use that to make a bullish play on the GLD at a very low price with a ratio call debit spread, which is what I’m recommending this morning.

Using a spread order, buy to open 1 GLD Aug. 16th $128 call and sell to open 2 GLD Aug. 16th $132 calls for a net debit of about $0.05.

Note: Be sure you are opening the monthly GLD options that expire on Friday, Aug. 16, 2019.

About Debit Spreads

A ratio debit spread is simply a way to lower the cost of buying options, as the two options that you sell to open (short) help offset the cost of the option that you buy to open. Therefore, this ratio call debit spread is a way to lower the cost of establishing a bullish call option trade. Many brokers will require the use of margin and/or a set amount of reserved capital to execute a ratio debit spread; contact your broker directly for specific requirements.

Because you are short a naked call in this ratio call debit spread, one risk is that the underlying stock could unexpectedly move up sharply. If that happens, we would need to buy back to cover and close the naked call option for a loss.

The other risk due to the naked call is if the stock moves up sharply the call could be assigned. This means that for every 1 call option we sold to open (shorted), we would need to buy 100 GLD shares on the open market at an unknown higher price and then sell the shares at the $132 strike price for a loss. So, this is inherently a higher risk play. Keep your positions small.

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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.