The recent move up in the price of gold has created an opportunity for a bull put spread on the gold ETF, GLD. The implied volatility to statistical volatility ratio is at 177.56 which is the highest it has been this year. The high implied volatility relative to the statistical volatility means that the options are relatively expensive and probability favors selling options when they are historically expensive as measured by their implied volatility. GLD is at the top of its two standard deviation Bollinger Band, and the put spread discussed below is placed more than four standard deviations below the current price of GLD. The probability of the spread expiring completely worthless is about 80%.

Gold has been making a strong move lately. The low for the year for GLD was made on May 30th when it hit $148.53. It has tested this area a couple of times and held. At the end of June GLD held support at the $150 area. In mid-July it again tested the $150 area and held support. Since mid-August it has been in a strong up-trend and is near the top of a two standard deviation Bollinger Band. Based on the current statistical volatility, there is just about an 80% probability that GLD will remain above $153 over the next month, into the September 22nd option expiration. A 153 - 149 September 22nd Bull Put credit spread can be established for $0.45 cents, which equals a maximum profit of $45 per contract. The risk is 4 points, so for each spread you'd have a risk of the spread minus the credit which is $400-$45 = $355, which is the absolute worst case scenario. The implied volatility of the 30 day options is about 14.70 and the historical volatility is about 9.48.

One news item to watch between now and expiration will be Bernanke's Jackson Hole speech on August 31st for indications of stimulus that could impact the price of gold. If gold drops in price, your worst case is limited, but you still may want to use a stop if gold approaches the upper strike of the spread. These types of spreads can have a high probability of profit, but with the strong chance of success, there comes a poor risk/reward ratio. The chart below shows GLD on a daily basis. The support earlier this year is clear. A two standard deviation Bollinger Band is illustrated with a 20 day ma. The Red line below is the daily prices moves measured in standard devations. The line at the bottom is the ratio of the implied volatilty vs. the statistical volatility which is at a high level, 177.56.

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.