Trade Alert – (GLD) October 24, 2012

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.

Trade Alert – (GLD)

Stop loss- sell the SPDR Gold Trust Shares (GLD) December, 2012 $160-$165 Call Spread at $3.05 or best

Closing Trade

10-24-2012

expiration date: 12-21-2012

Portfolio weighting: 10%

($10,000/100/$3.05) = 25 Contracts

This trade has been a real disappointment. Despite seeing the greatest monetary stimulus package in history, gold is now lower than when QE3 was announced. You can do all the research in the world, but when market sentiment and election fears overwhelm you, it does no good.

Having broken the 50 day moving average, it now looks like (GLD) wants to challenge to 200 day moving average at $161.4. That is down another $40 in terms of the spot market for the yellow metal. They don’t call this the barbarous relic for nothing.

Still, we have to trade the market we have, not the one we want or deserve. So I am stopping out of the SPDR Gold Trust Shares (GLD) December, 2012 $160-$165 Call Spread at $3.23 or best. We are approaching the upper $165 loss, so I have little choice but to bail. I am too old to lose all my money and then plead for my old job back as an entry level trainee at Morgan Stanley. Besides, they probably wouldn’t have me back anyway.

I will revisit this trade in the future. QE3 is still in force and should work. But we need to get year end profit taking and the election out of the way. The continued slowdown in China isn’t helping. Many investors probably want to see the monetary expansion in the flesh, which usually lags by a couple of months, before that increase their positions in the barbarous relic. Watch the monthly data from the Reserve Bank of St. Louis.

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 spread trades can be enormous. Don’t buy the legs individually or you will end up losing much of your profit up front. If you don’t get filled, then just wait for the next Trade Alert. There will be many fish in the sea.

The same applies if you don’t understand this trade. Better to watch this strategy unfold on paper in the model portfolio before you try it with real money.

Keep in mind that these are ball park prices only. Spread pricing can be very volatile on expiration months farther out. These are the trades you should execute:

Sell 25 December, 2012 (GLD) $160 calls at……………………$6.95
Buy to cover short 25 December, 2012 (GLD) $165 calls at…….$3.90
Net proceeds:……………………………….………..…………….$3.05

Loss Calculation: $4.00 – $3.05 = $0.95

(25 X 100 X $0.95) = -$2,375, or -2.36% loss for the notional $100,000 portfolio.