"Sold 2 June $52 GDX puts and bought 1 June $175 call. That trade was done for a net credit of $86. As before we will hope to manage our way out of the risk of being short the GDX puts while using the GLD calls to profit from any wacky spike in the price of gold. "
Since the time of that trade the price of gold has fallen and the value of gold miners stocks has fallen further. Hence this trade has been a loser and was closed on Wednesday for a loss of $1,551/contract. That is not surprising as results of this position are anticipated to be highly correlated with the price of gold.
Of course no one likes to see a losing trade, but this is the fifth time this same type of trade has been completed and only the first time it has been a loser. Cumulatively these 5 option trades are up 41% as compared to buying and holding of gold (gld) over the same time period would have returned 29%.
CCI remains somewhat unexcited about the prospects for gold, but feels from a diversification perspective it still makes sense to have some exposure to gold in a portfolio. I continue to feel this type of paired option trade provides a better leveraged, lower cost way of gaining that exposure for the portfolio than simply buying the etfs. Hence this trade was re-established in September options. Specifically, on Wednesday CCI
- bought 1 (GLD) Sept $155 call, (with GLD trading at about $151)
- sold 3 (GDX) Sept $39 puts (with GDX trading around $44)
- these trades were done for a collective net $31 credit
- this trade conceptually puts at risk $11,669 for the potential purchase GDX. (actually less capital is actually tied up due to option margin rules). This trade starts to lose money if GDX falls by more than 10% this summer. The trade starts to gain from anything over about a 3% gain in gold this summer and is position to have unlimited, leveraged gains if for some macro level reason the price of gold spikes this summer.