In today's Daily Buzz free chat we spent some time discussing GLD and the potential for a move that could be profitable for a strangle. For those that missed today's chat, or for those just looking to learn more behind this potential trading idea, I thought I'd fill in a few details.
There are three main reasons why I like this trade, and you can see two of them on the chart below:
GLD daily chart with implied volatility
The first is that the stock has been consolidating. We've seen this setup many times before with this stock (I know, I know...it's really an ETF, but who cares?), and just last week we found a strangle that profited 50% in less than four days. That's that gap you see about six bars from the last.
But it's not just stock consolidation, and the idea that the stock might be getting ready to move, it's also about the implied volatility of the options. This is the second thing that I like about this trade. You just shouldn't trade a strangle, or any option for that matter, without first considering and understanding the implied volatility.
If you compare today's levels with those back in early April, then today's levels seem high. But I think we're in a 'new normal', at least for a little while longer; and today's volatility looks cheap compared to late April and late June. I discussed this in greater detail during our Live Trading Session today.
Finally, the third reason you might want to own some GLD volatility is the data and announcements coming out this week. There's ADP employment, the Fed meeting, and non-farm payrolls on Friday. That's a lot of stuff. Putting it all together, and I think GLD volatility is a 'buy.'
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.