Today GLD is breaking out to the upside and broke resistance around 122.45. I am not sure how high it goes from here but there could be some nice upside, as one theme I have noticed in the markets is that names that make new all time highs usually continue to make new all time highs, at least for a while. If you don't believe me go look at APPL, NFLX, BIDU, CMG, VMW, CRM, and many others. Here is a daily chart of GLD over the last year:
I got my long exposure via bull put spreads. I sold 3 Jul '10 122/120 put spreads for a credit of $0.74, which leaves me with a risk of $1.26 per contract. I will use a daily close below the trendline that I drew above as my stop. As long as it stays above the trendline I am willing to add a few more contracts to my positions on any dips.
I think this is a very sound trade idea. Can you imagine if you had no time constraints and more capital to trade? I like where you're headed. I think the coming questions are going to be how to best allocate capital, and how much leverage is comfortably safe to use. I think those questions will be answered in time with more experience.
ReplyDeleteToday GLD has pulled back almost $2. I am adding to this position by way of selling 10 July '10 119/116 Bull put spreads @ $0.85. Again my stop is a close below my trend line, but more specifcally I am looking at the 119.80 to 120 level to hold. Otherwise I will not let this one trade too much against me. By my calculation at 119.80 I am risking about $280 to make about $1,000. This position is also going to allow me to neutralize my beta wheited Delta exposure by half from 400 down to 195. I am still about 45 Delta's over my ideal exposure.
ReplyDeleteI want to do something here but haven't decided what yet. The $122.47 didn't become support and gold moves in chunks so I'm going to look at this further. If you use the Sep, Feb, Apr lows there is actually a much lower trend line in place that would allow for a pullback to $115 without violating it.
ReplyDeleteI see what you are seeing on the chart. But I will be long gone from this trade by then. I am looking for the momentum trade. But it is important for my trade that it holds the $120ish level.
ReplyDeleteI also got out of this one for a small gain of about $50 as I thought about why I was in the trade. I was looking to catch momentum higher, the momentum died so for now I would rather be flat and see what gold does. As Jason says this metal moves in chunks. Sometimes you just have to go with the gut.
ReplyDeleteI think this is perfect risk mgmt on your part. Your original thesis didn't work out, your gut told you to get out, so you did. The $50 is just a bonus, realistically you should have gotten out because of the aforementioned reasons and the P/L is just a statistic of that decision.
ReplyDelete