Follow Up to Trade Alert – (GLD) April 26, 2013

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

Further Explanation to: Trade Alert – (GLD)

Sell the SPDR Gold Trust Shares May, 2013 $125-$130 call spread at $4.90 or best

Closing Trade


expiration date: 5-17-2013

Portfolio weighting: 20%

Number of Contracts = 44 contracts

I can’t remember the last time I caught a $70 move in gold (GLD) in four days. I think it was at the top of the last gold bubble in 1979. That day found me waiting in a line at a gold shop in Johannesburg, South Africa, waiting to unload my krugerands.

With the SPDR Gold Trust Shares May, 2013 $125-$130 call spread trading at $4.90, we have captured 83% of the potential profit in the trade. So in the spirit of my new trading strategy of not being greedy, I am going to take the money and run. A four day, 21% trading profit is nothing to sneeze at.

Most of the buying this week has been the covering of shorts that were only established last week. It is incredibly hot money. Goldman Sachs (GS), which kicked off the melt down last week with its call to initiate short potions in the barbarous relic, told traders yesterday to cover those shorts.

By taking profits here, you now have dry powder to reestablish the identical position with gold $50 lower. As I said when I first put this trade on, this could be the gift that keeps on giving. Putting in a real bottom for the yellow metal will be a multi month process at the very least.

It also doesn’t hurt to go into May with an almost entirely cash position. To see what I mean, take a look at the Japanese yen this morning, which is crucifying the shorts.

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.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months further out.

Here are the specific trades you need to execute this position:

Sell 44 May, 2013 (GLD) $125 calls at……………$18.05
Buy to cover Short 44 May, 2013 (GLD) $130 calls at.…….$13.15
Net Cost:………………………………….……..…….$4.90

Profit: $4.90 – $4.40 = $0.50

($0.50 X 100 X 44) = $2,200 – 2.20% for the notional $100,000 model portfolio.

GLD 4-26-13

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