The gold chart looks poised for a bounce. How to play it for less
If you are watching SPDR Gold Shares (GLD)You know that the yellow metal has consolidated and bounced back from the 150-day moving average (support). If we choose to use the 200-day moving average, that support level is just below $400, which is about the 50% Fibonacci retracement level.
Here’s how to change the technical setup: June $395/$445/$480 call spread risk reversal.
SPDR Gold (GLD), YTD
This strategy provides a low-dwindling uptrend for total net debt of only $4.00 per contract, or 1% of the current price. Of course, selling this low strike put would tie up a lot of cash, but it would be less than buying just 100 shares of GLD.
- Sell the $395 Put in June
- Buy June $445 Call
- Sell the June $480 Call
- Skill level: Advanced
Why Does This Strategy Win?
- Structured Around Key Technical Levels: We see immediate resistance at $441. We pay no “hopium” premium by setting our long-term strike at $445. Instead, we use call propagation to reduce the immediate resistance barrier. Meanwhile, the $395 short position remains comfortably around our lower support level. If GLD declines, $395 is a level where one might consider adding to their positions. We’re taking that risk by selling this stock, but it’s an acceptable risk.
- Weaponizing the “Call Skew”: Gold and other commodities follow different rules than stocks regarding option prices. For stock options, it generally puts the trade at a higher value than out-of-the-money options and out-of-the-money puts. In commodities, when geopolitical tensions or inflation fears rise, investors often scramble for positive calls, making out-of-the-money options more expensive than out-of-the-money options. By selling higher-strike $480 puts, we take advantage of this “call skew” to heavily subsidize the cost of our $445 upside exposure.
- Theta Sleep-Easy Factor: Pure long option positions flow money every day you wait for the move. Because we are selling an unprofitable sale And with a higher beat call we greatly reduce our time loss (theta). Time is no longer your enemy.
Risk reversal will tie up slightly less capital than buying GLD stock at $433, allowing you to capture much of the expected “gold rush” with virtually no premium outlay. You get a defined, subsidized upside, a meaningful buffer on the downside, and a trade that works with The dynamics of the options market are not against him.
Compromise, use the skew and let the 150-day moving average do the heavy lifting.
