Combat Options Trading: SPDR Gold Trust ETF

With threats to the dollar from China and debt problems plaguing Europe, gold is rising and should continue to be a safe haven.
By Matthew "Whiz" Buckley ,

With the continuing debt problems in Europe and the uncertainty as to China's actions with its hot and cold economy, gold prices continue to push higher. It also remains to be seen if the "Santa Claus rally" will come to fruition or be a lump of coal.

Strategic mindset:

Bullish

Target:

SPDR Gold Trust ETF

(GLD) - Get Report

, trading at $135.51.

Commit Criteria:

With threats to the U.S. dollar from China and debt problems that continue to plague Europe, gold is rising and should continue to be a "currency" of safe haven. Taking a quick look at the chart for GLD we see the continuation of higher highs and higher lows indicating that the stock may be headed to new highs. An investor could also take a look at a similar trade on the

iShares Silver ETF

(SLV) - Get Report

.

Tactic:

Long Call

There's several bullish tactics we could execute on GLD by employing options, but at Fox3 Options we're looking at one of the most basic tactics -- the long call. Implied volatility is low enough that we don't think that GLD rising will hurt this tactic. To the contrary, as GLD hits new highs volatility most likely will increase.

Tactical Employment:

  • Buy 10 GLD January 140 call
  • Limit price $2.53
  • Risk = $253 per option
  • Reward = Unlimited

Mid-course guidance:

Loss exit:

50% of the debit, so if the trade drops to $1.27, we'll close the trade.

Profit exit:

50% of the debit, which is $3.80. Then reset profit exit to $3.16 (25%).

Exit:

Simply close trade by selling GLD January 140 call for a credit. It's unlikely that we'll hold this position to expiration so we'll follow the mid-course guidance closely.

Firing Line:

The long call is an example of a primary/intermediate tactic employed by our professional traders at Fox3 Options.

To see other sample trade alerts, click

here

.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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