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Virtually Riskless SPDR Gold Trust Position If Gold Rallies

Published 05/23/2013, 12:30 AM
Updated 07/09/2023, 06:31 AM
GC
-0.19%

Yesterday’s trade in this vehicle had not been offered as a tout, but a timely question in the chat room helped us identify an opportunity to pick up some cheap call options intraday. Here is what I wrote in the chat room:

“The Auggie 160 market is 0.22/0/26, so 0.24 is the right price with GLD at 132.88. So, if GLD falls to our 131.83 target, the Auggie 160s should sell for about a nickel less (they have a delta value of about 0.04). So let’s bid 0.21 (an extra penny for good measure) for 28 of them., stop 0.18. We’ll worry about what to spread against them later.”

Although the intraday low at 130.95 exceeded our target, the result was that subscribers were able to buy August 160 calls for 0.21, a penny off the intraday low.
If-GLD-were-to-hit
This position is highly speculative, since there are two very bearish targets outstanding, but it has the potential to pay off at about 60-to-1. With a three-cent stop-loss on the calls, we’ve limited our theoretical risk to about $84.

However, I’m now going to suggest giving the position a little more room by lowering the stop to 0.16. At the same time, and on a one-order-cancels-the-other (OCO) basis, I’ll suggest offering 28 August 163 calls short for 0.30 against those we hold. If the order fills we’ll own a virtually riskless position that can make us as much as $8400 if Gold rallies strongly between now and late August.

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