GLD Calendar - submitted by Joseph

Technical analysis: GLD broke the resistance of $100 on 10/06/2009. The expectation is that it will keep go up. The target price is around $130



2. GLD movement is not very bullish. Expected trend is slightly bullish.
3. Monthly premium for selling call is between $0.8 to $1.0.




4. Trade structure:

BTO Jan 16, 2011 Strike 110 call at 11.28
STO Nov 6, 2009 Strike 110 call at 1.28
Net debit 10.00
Maximum risk 10.00
BE: 101.9 and 121.2
PE: Options expired worthless. Or 20% gain.
SE: Bullish – if the short call is ITM, roll up and out
Bearish – Roll the short call down.





Innovestor's Comments:

I had been bullish on gold since 1 month ago when it tested 950.Since then it broken up the last few days.

I commented previous that this current rise is the result of a short squeeze by the commercial ( institutional traders ).

Take a look at the following chart:



The numbers on this chart display the net futures contract positions of commercial gold traders. In March 2008, as gold powered above $1,000 per ounce and as mom-and-pop investors were chasing the price higher, the smart money was selling. Commercial traders were net short a total 253,000 gold futures contracts. At the time, that was one of the largest net short positions ever recorded.

Two weeks ago, the Commitment of Traders report disclosed the commercial net short position was 285,000 gold futures contracts – perhaps the largest net short position ever recorded. But look at what has happened since then...

The commitment of traders report is published every Friday on www.321gold.com. If the smart money increase their commentment this Friday, that means a decline may be imminent. If the commercial traders are covering their shorts, price will surge higher.

For the time being I am bullish. I will wait for this Friday to place more trades. But meanwhile, I am selling calls to take some profit from my long positions.

Another comment on gold before I get specific on your trade. I believe gold is in a head and shoulder pattern and it has consolidated for many months. If it is true, then $120-$130 for GLD is reachable. But it will not happen immediately. It will probably reach this target by Q 1 next year.

This chart was taken from www.Kingworldnews.com. This guy is extremely bullish:



Have said all this, fundamental rules. The main reason for gold to be strong is the weakness of the US$ and inflationary fears. There is a lost of confidence in paper currencies.

Specific comments on your trade:

I am not good at Calendar spreads. Personally, I will not place calendar spreads for GLD as it moves violently up and down.

If gold break up or down, you will be forced to adjust.

IV is getting high. Momentum is up. A short term credit trade will work.

As for me, I believe there will be a correction. I will wait till it goes down to around 1000-1020 and see how it behaves. If it hold, I will enter some covered call trades for GLD and other gold stocks. For now, I have enough trades in my portfolio to enjoy the bull run. Almost 40% of my portfolio are in gold related equity and etf. I will need to slow down and take profit!!

If it does not continue to go up, I will wait for the correction and see how deep it goes. Often commodities are actively traded and it moves up and down a lot. Covered calls, bull puts and ratio spreads work better. It is not a stagnant trade - so why use calendar.