Trade Idea: GLD March 18th 140/September 17th 165 LCD*
... long call diagonal.
Comments: Here, I'm preliminarily pricing out a bullish assumption GLD setup, buying the back month 90 delta and selling the front month at-the-money call. I'd prefer to deploy this at that obvious support level at 160, which has resulted in some buying interest previously. If that occurs, I'd have to tweak the strikes slightly, selling an at-the-money 160, for example, and then buying whatever the 90 delta strike in the back month.
The Metrics:
Buying Power Effect: 22.79 ($2279)
Max Profit: The Width of the Diagonal Spread (25.00) Minus the Debit Paid (22.79) = 2.21 ($221)
ROC %-Age as a Function of Buying Power Effect: 2.21/22.79 = 9.7%
Break Even: The Long Call Strike (140) + the Debit Paid (22.79) = 162.79 versus a spot price of 164.64
Trade Management:
Take profit on the setup's approach of max (which would be 25.00).
Otherwise, roll out the short call to a strike at or above your break even of 164.64 to reduce setup cost basis.
Variations:
Preliminarily, I'm pricing out the setup with a fairly long-dated back month. To get in with less buying power effect, look to buy a shorter duration back month 90 delta, with the trade-off being that you'll have less time to reduce cost basis via the short call in the event that gold prices keep on going down. To look for more profit potential, sell a less monied call (e.g., the 30 delta) to give the trade more room to the upside.
Comments: Here, I'm preliminarily pricing out a bullish assumption GLD setup, buying the back month 90 delta and selling the front month at-the-money call. I'd prefer to deploy this at that obvious support level at 160, which has resulted in some buying interest previously. If that occurs, I'd have to tweak the strikes slightly, selling an at-the-money 160, for example, and then buying whatever the 90 delta strike in the back month.
The Metrics:
Buying Power Effect: 22.79 ($2279)
Max Profit: The Width of the Diagonal Spread (25.00) Minus the Debit Paid (22.79) = 2.21 ($221)
ROC %-Age as a Function of Buying Power Effect: 2.21/22.79 = 9.7%
Break Even: The Long Call Strike (140) + the Debit Paid (22.79) = 162.79 versus a spot price of 164.64
Trade Management:
Take profit on the setup's approach of max (which would be 25.00).
Otherwise, roll out the short call to a strike at or above your break even of 164.64 to reduce setup cost basis.
Variations:
Preliminarily, I'm pricing out the setup with a fairly long-dated back month. To get in with less buying power effect, look to buy a shorter duration back month 90 delta, with the trade-off being that you'll have less time to reduce cost basis via the short call in the event that gold prices keep on going down. To look for more profit potential, sell a less monied call (e.g., the 30 delta) to give the trade more room to the upside.
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