The Arena
Considering the state of commodities, in this case GLD, and the volatility they’ve experienced recently I think it may be time to consider a pinky toe sized position here. Fed chair Jerome Powell suggested just last week that higher commodity prices could impact the economic outlook ahead. In that light I don’t think its a stretch to assume we could see a run up even higher from here as investors look for safety. Alternatively, the run up could be simply that. A run up that’s run its course and is positioned to normalize in the near term. Can GLD nail the triple axle from the high dive or will they slip off the board and belly flop. We’ll find out soon enough.
The Coach
Stagflation, inflation, reflation, or deflation, I’m having a hard time keeping up with just what name were pinning to the current state of the US economy. It seems that depending on who you ask, what time of day it is, and whether a pigeon flew over a tree all seem to be economic indicators right now. With that, I’m considering a leap into a GLD bull call spread to capitalize on my bullish sentiment and the current uncertainty. Typically, during a period of rising interest rates or elevated prices I’d be more hesitant with a bullish position. However, safe haven assets such as gold can benefit dramatically when investors don’t know where else to turn.
In contrast, GLD has run up to the roof and touched a price point not seen since August of 2020. Additionally, price has, for now anyway, rejected that idea and traded off that level to a recent low approximately 18 points away. To risk pointing out the obvious, when an asset moves lower by nearly 20 points that isn’t usually a good sign for what comes next.
Is the state of the yellow metal due for a return to the mean or will we see another surge higher? For more on the forecast for gold this year here is an article from Capital.com. Gold price forecast for 2022 and beyond: Will it rise to new highs?
The Attack
If the chart above suggests a move higher is coming you may consider a bull call spread to keep losses limited and capitalize on a possible rally. Then again, this may well be the move lower we can all see. If GLD continues its descent then possibly a bear put spread is in order. I guess we’ll find out soon enough.
Finally, I’d be remiss if I didn’t mention long options management. Proper management is critical to the success of long options and greed is almost never ideal. With that in mind, do also keep an eye on the clock. Too long in a long could mean saying so long to the premium. Just saying!
Bullish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 17 JUN 22 184 Call | 17 JUN 22 186 Call | $50.00 | $50.00 | 61% |
Bearish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 17 JUN 22 175 Put | 17 JUN 22 173 Put | $65.00 | $65.00 | 65% |
God Bless,
Jeff
