Follow Up to Trade Alert – (GLD) May 1, 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)

Trade Alert – (GLD) – Update

Buy the SPDR Gold Trust Shares (GLD) June, 2013 $150-$155 in-the-money bear put spread at $4.35 or best

Opening Trade


expiration date: 6-21-2013

Portfolio weighting: 10%

Number of Contracts = 23 contracts

The real shocker today in the Fed’s announcement is that it may increase monetary easing from here. As if we haven’t had enough already, with the US and Japan throwing in a combined $170 billion a month worth of monetary stimulus!

More easing means that the America’s central bank thinks the global economy is even weaker than you and I realize. Yikes! Man the lifeboats, pass out the parachutes, and tighten your seatbelts! This is bad for commodities and even worse for precious metals, especially gold.

The barbarous relic has managed an impressive $155 rally off its $1,325 bottom made two weeks ago. This is one of the largest and fastest moves up in the yellow metal in history. It has been largely achieved through large scale buying of physical coins in India and the US, as well as short covering in the futures markets and the ETF (GLD). The disappearance of margin calls has also been a major help.

The heavy hand of the China slowdown is still with us. So I am more than happy to buy the SPDR Gold Trust Shares June, 2013 $150-$155 in-the-money bear put spread at $4.35 or best. The big attraction here is that I have a generous $97 safety cushion over the next six weeks before I lose money on this trade.

You can thank the sky high implied volatilities on the (GLD) puts for getting such a great deal on this spread. Just for the sake of comparison, the implied on the (GLD) $150 puts you just sold short is 18.2%, some 30% higher than the 14% front month implied on the Volatility Index on the S&P 500. If you don’t understand why this is important, please buy the book, Options for the Beginner and Beyond, by clicking here:  Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks (2nd Edition).

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:

Buy 23 June, 2013 (GLD) $155 puts at……………$14.65
Sell Short 23 June, 2013 (GLD) $150 puts at.…….$10.30
Net Cost:………………………………….……..…….$4.35

Potential Profit at expiration: $5.00 – $4.35 = $0.65

($0.65 X 100 X 23) = $1,495 – 1.50% for the notional $100,000 model portfolio.

GLD 5-1-13

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