Bullish on Gold (GLD) Near Term

With my continuing bearish attitude towards the overall markets I moved my attention to gold and more specifically the major gold ETF, GLD.  I started with a limit order on a debit vertical call spread, but decided to switch it to a put spread for a credit.  The risk was close to the same since I was hedging my trade on each of them, but I saw a little edge with the put spread considering that I might take an option assignment on one or two of the puts and write covered calls.  300 shares of GLD would be too much for my little account.

While at $87.49 I bought to open three GLD May 85 puts (GLDQG) at $1.36 and paid $410.25 with commissions.  As the second leg of the same trade I sold to open three GLD May 88 puts (GLDQJ) for $2.71 and received $800.73 with commissions.  Those together gave me a net credit of $390.48.  That leaves me with a potential downside of a little more than $500.

I started writing this post this morning when I made the trade and I looked smart.  By now it’s 2:15 and I can see that I mistimed my trade by a decent amount.  That doesn’t mean I think GLD is heading south too far, but that I just could have done better than I did.  I still see a chart that shows GLD broke above its down trending line of lower highs yesterday and confirmed that break today although at this point in the day I see that the same trend line is now acting as support to the low side.  GLD could trade sideways for a while, but I see $85.00 as a near term bottom.  In hindsight, I should’ve made a smaller trade and used $85 as my sell strike and used a lower buy strike too.  I’m letting it run longer to see how it plays out.  There is a lot of time left before May options expiration and I don’t expect it to be calm.

I’m considering a put spread on SSO too.  I figure one will be assigned and one will finish out of the money.  It would be a little bit of a spin on what Mule65 was suggesting in the comment’s of yesterday’s post.

Also, for more gold analysis check out David Buffalo’s post today.  He offers some interesting thoughts worth considering.