The New Way to Exploit “Old Faithful”

You remember gold, right?

Now we’re obviously long past the days where you could walk into a hotel, throw down a coin, and get a room, drink, meal, and hot bath.

And today, no one walks around with bullion in their pockets. Gold isn’t considered a “currency” anymore. It’s something you store in your lock box in case of a zombie apocalypse.

But while it seems pretty logical and reasonable to store it away until doomsday arrives…

There’s actually a much faster way to get some mileage out of your gold hoard.

So forget the mattress and the floorboards.

Here’s something much better to do with your gold…

Consider Trading Options on SPDR Gold Shares to Secure Your Present – and Future – Wealth

Gold, the “old faithful” of precious metals, was the talk of the town last week – and it still is. There are many gold stocks out there in which you can consider investing or trading options, such as Rangold Resources Limited (NASDAQ: GOLD), ¬†Alamos Gold, Inc. (NYSE: AGI), and Eldorado Gold Corporation (NYSE: EGO).

But the one that could serve you best – and my personal favorite – is SPDR Gold Shares (NYSE: GLD).

Instead of feeling the pressure of trying to pick that one stock that will outperform the rest, GLD allows you to play the overall sector.

Now I could go on about the benefits of trading options on GLD, but let me show you instead…

I found a couple of option scenarios from June 10th that could work out really well for you if you were to go through with trading them. That said, keep in mind that I’m not actually making a trade recommendation here. This is simply to show you why options on GLD could be the best move you make on gold this year.

The first scenario is nothing fancy – just a straight, buy-the-call (long call) option on GLD in anticipation of the stock moving higher:

At the time (on June 10th), you could’ve gotten into this trade for just $3.00 per contract (or $300 per contract).

And as I’m writing this, this trade has gone as high as $4.40. That’s a $1.40 increase – or nearly a 50% gain since I first looked at this scenario. And this is during the high volatility we’ve seen recently due to the Brexit decision.

That’s a pretty decent gain!

Here’s another…

In this scenario, the idea is to hedge the risk of the price you’d pay for the $125 call ($3.000 by selling another call with the same expiration but at a different, higher, strike price.

This is called a vertical call debit spread, or a loophole trade, as I often call it:

As you can see, this August $125/130 vertical call debit spread could have been opened for just $1.35 per contract (or $135 per contract).

Fast forward to today, and this spread has jumped to $2.11. That’s over a 56% increase!

The Future of Gold now that Britain’s Out

In the chart below, you can see that GLD had a nice upward run in June – largely in part because of the weak May jobs report for May and the whole Brexit situation. And it was that anticipation of a continued upward move that had me look at some GLD set-ups.

What I looked for were option opportunities with expirations in August so that the trades would have a chance to perform beyond the results of Brexit.

GLD trailed off a bit six trading days prior to the referendum, as the consensus was that the vote to remain in the EU would hold. But as we know, the vote shocked the world, as you could say, with the UK ultimately deciding to leave the EU.

And that same day, the British pound fell to 30-year lows against the dollar. The Asian markets also tumbled quite extensively while the Australian Stock Exchange dropped by 3%. And as I’m sure saw, the U.S. markets fell by 3.5%.

So what now?

Well, we’re all waiting to see which country (or countries) decide to follow Britain’s lead and vote to the leave the EU as well.

And that makes the U.S. dollar, Japanese Yen, and GOLD the new “safe havens” for your money as the global equity markets figure out where prices make sense.

In the meantime, you’re probably going to see and hear a lot of people talking about an impending recession. I won’t be one of them, but I will definitely be on the lookout for whatever comes our way in the short term.

And if the recession mumbles become a more plausible reality, or if we see seasonal bearishness in the markets, we know what to lean on for potentially profitable trading opportunities to the upside…

And that’s gold… specifically, GLD.

Here’s Your Trading Lesson Summary:
While there are many, many gold stocks out there on which to trade, like GOLD, AGI, and EGO, the stock that could serve you the best is SPDR. Unlike the others, from which you must decide is the superior gold stock, GLD lets you play the overall sector – for stress-free, easy, cash.

Have a fantastic – and safe – 4th of July weekend!

Tom Gentile

7 Responses to “The New Way to Exploit “Old Faithful””

  1. Richard Sandoval

    I bought SLV call yesterday, Aug 5 expire 18.5 strike for .30(10 contracts) sold this am for net 80% gain. Tom, your are rubbing off. By the way, silver has continued to rise
    Not bad for one day.

  2. Mary Bordeaux

    Great wins! The burning question is, Were there any losses during this same period?
    Also, Ameritrade denied me Level 2 option purchase. Do you know a broker that might be more flexible?

  3. I am learning options from scratch, but having a blast. Making money overall even though I made a few mistakes. I didn’t have the right Options trading platform. Fixing that and moving forward. I can see this as a major part of my retirement strategy and getting out of the west Texas oil fields…

  4. Thanks for the comments… Larry I am a buyer of any cheap underlying UNLESS the time value of the options are cheap, than I would rather reduce the cost and buy options. RIGHT now with the markets the way they are, options overall are cheap, but we do have earnings that could pump up options prices and force me to think alternatively… Also keep in mind that losses are almost guaranteed… Nothing is 100%. Capital Preservation in my mind is the most important part of trading if you want to make this a career and not entertainment. Mary, I would suggest to your broker that your a student of mine and that your learning that spreads actually reduce risk and see what they say then… BTW I plan on using your question on a video I will release to everyone here later this week.

    And Finally… thanks again for the comments… Mistakes will happen, its no different in trading then life. Its what you do after learning the mistake that will make you a better trader.

Leave a Comment

View this page online: