Note: This trade alert was originally published April 18, 2016.
Our SPDR Gold Trust (NYSEARCA:GLD) April 2016 $109-$112 in-the-money vertical bull call spread expired over the weekend. Since the barbarous relic galloped right into the close, we were able to capture the maximum expiration value of $3.00. This means were earned a 12.35% profit in 18 trading days. In this environment of minimal low risk, high return trades that is much better than a poke in the eye with a sharp stick.
I am now back in the mode of attempting to get back into the yellow metals on the next $50 dip in the price.
Gold is one of the very few investments that absolutely everyone wants to own this year. Almost all economic scenarios going forward are gold-positive. Negative interest rates mean the opportunity cost of owning gold has dropped to zero for the first time in history.
Any chance of a sudden swoon in the markets and a big "RISK OFF" move means gold instantly picks up a flight-to-safety bid. Sounds like a classic "heads I win, tails you lose" kind of trade.
If you can't buy options, just pick up the outright. Don't touch the Market Vectors Gold Miners (NYSEARCA:GDX) on pain of death. It has run too far, too fast.
Best case, gold breaks out to a new one-year high on the next stock meltdown, which could be only days away. This would make the perfect hedge for any long stock positions you may have.
Remember, the reasons we like the yellow metal now are that it is the biggest beneficiary of a NIRP (negative interest rate policy) environment. Production will fall 20% over the next four years, and China and India are ramping up their reserve buying.
If you are uncertain on how to execute an options spread, please watch my video "How to Execute a Bull Call Spread" (account registration required).
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Here are the specific trades you need to execute this position:
- Buy 37 April 2016 $109 calls at $8.92
- Sell short 37 April 2016 $112 calls at $5.92
- Net Cost: $3.00
Profit: $3.00 - $2.67 = $0.33
(37 X 100 X $0.33) = $1,221 or 12.35% profit in 18 trading days
Disclosure: I/we 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. I have no business relationship with any company whose stock is mentioned in this article.