Trade Ideas, Trade Updates October 6, 2020

GLD Lingers

by Dan

On August 26th I detailed a defined risk Bullish trade idea in the etf that tracks gold, the GLD as it had pulled back to its uptrend near $180:

Screen Shot 2020-08-25 at 4.19.44 PM.png
This is the sort of market to buy dips in winners when they correct to their uptrends as in the case here…, but want to stop the trade below the uptrend…
Bullish Trade Idea: GLD ($181) Buy Nov 182 – 205 calls spread for $5
-Buy to open 1 Nov 182 call for $7
-Sell to open 1 Nov 205 call at $2
Rationale: this trade idea risks a little less than 3% of the etf price, breaks even up 3.3% and has a max gain of 10% of the etf price if it is up 13% in 3 months.

I was a little early, now with the GLD at $179.50 the Nov 182 – 205 call spread that cost $5 is now worth only $3.60. It makes sense to keep a close eye on this one as we want to use a mental stop of 50% of the original premium spent.

The etf has just rallied a few percent from its recent lows, which was also technical support at the uptrend from its June lows, and today was momentarily rejected at its downtrend from its early August highs which should serve as near-term technical resistance:

If I were new to this trade and inclined to play for a breakout of the downtrend and retest the early Aug breakout level near $192 due to the declining U.S. dollar and fear of downward stock market volatility in front of the election I might consider a Nov call spread, for instance:

Bullish Trade Idea: GLD ($179.50) Buy Nov 182 – 192 call spread for $2.50

-Buy to open 1 Nov 182 call for $4

-Sell to open 1 Nov 192 call at $1.50

Break-even on Nov expiration:

Profits of up to 7.50 between 184.50 and 192 with max gain of 7.50 above 192

Losses of up to 2.50 between 182 and 184.50 with a max loss of 2.50 below 182

Rationale: this trade idea risks 1.4% of the etf price, has a break-even up 2.8%, and has a max potential gain of 4.2% of the etf price, or 3x the premium at risk if the etf is up 7% in nearly 6 weeks.