New Trade $GLD: As If The Gold iPhone 5s Didn’t Mark The Near Term Top?

by Dan October 10, 2013 3:29 pm • Commentary

Here is one that we don’t trade a whole heck of lot of, largely because we can find no fundamental value in the asset, GLD.  The shiny metal could not rally when the VIX just saw the highs of 2013 on the government shutdown and fears of breaching the debt ceiling, I don’t suspect it will be able to rally for the balance of the year if we go back to what has been the norm, complacency.

As I have no fundamental basis to go from on the commodity, lets just look at the technical set up, on a near term basis the XAU is sitting right on massive support, a level when it broke back in late June went straight down 9% in the ensuing days.

XAU 1yr chart from Bloomberg
XAU 1yr chart from Bloomberg

On a longer term basis, looking at the 4 year chart 1200 should serve as very healthy support, the level that it bounced off back in June/July.

XAU 4yr chart from Bloomberg
XAU 4yr chart from Bloomberg

Looking at the GLD, the etf on the shiny metal, I wan to target owning the breakdown strike $125 (white line), and selling more options at the strike of what corresponds with the low of the year, $115 (red line).

[caption id="attachment_31189" align="aligncenter" width="589"]GLD ytd from Bloomberg GLD ytd from Bloomberg[/caption]


Which leads me to a Butterfly.

TRADE: GLD ($125.15) Bought Dec 125/115/105 Put Fly for 2.00

-Bought 1 Dec 125 Put for 4.70

-Sold 2 Dec 115 Puts at 1.65 each for a total of 3.30

-Bought 1 Dec 105 Put for .60

Break-Even on Dec Expiration:

Profits: btwn 123 and 107 make up to 8, max gain of 8 at 115

Losses: up 2 btwn 123 and 125 and btwn 117 and 115, max loss of 2 above 125 and below 105

Trade Rationale:  I hate pressing any short like this, but if the market finds its footing I suspect GLD makes one more shot at the summer lows, this is a good way to express this view with defined risk.