On June 11th I detailed a near-term bullish view on GLD, expressing it via a call spread in the GLD in August expiration (Gold Lingers)
Buy calls spreads playing for a breakout of the two-month range and a move to the mid to high $170s:
BULLISH TRADE IDEA: GLD ($163) BUY AUGUST 163-180 CALL SPREAD FOR ~$4
-Buy to open 1 Aug 163 call for ~5.55
-Sell to open 1 Aug 180 call at ~1.55
Since the time of the trade, the GLD has rallied 13.5%, blowing through the short strike in the call spread detailed above and making a new high from its all-time highs back in late 2011 when the investment world was convinced that a half a trillion in quantitative easing would cause massive inflation. Cute right? Well, we are now throwing around trillions in easing, and thus we have GLD moving higher for similar fears. I wouldn’t hold your breath though.
At this point with three weeks to expiration, GLD at $185.60, and the Aug 163 – 180 call spread that cost $4 when the etf was $163 is now worth $16. It can only be worth $17, so waiting three weeks for $1 does not make sense because the etf could drop, and the risk-reward of holding the call spread no longer makes sense. GLD will likely need to consolidate a bit before it can make a meaningful breakout and establish a new range above the 2011 highs.
Action: Sell to Close GLD Aug 163 – 180 call spread at $16 for a $12 gain.
For those that see a massive breakout, It might make sense to look to longer-dated upside call spreads. With the etf at $185.60, the Dec 31st quarterly 190 -220 call spread would cost about $5.50, with a break-even at 195.50 with max potential profits of up to 24.50 between 195.50 and 220 with a max gain of 24.50 above 220, or up 19% from current levels on the last day of the year.