Friday, June 18, 2010

The Ascension in Gold

Friday's surge in gold served as yet another breakout in a long line of bullish price patterns over the last few years. Today's chart highlights a few key technical levels the SPDR Gold Shares ETF has breached in its resilient march to recent highs. Whether or not the current breakout is followed by as strong of a run as past breaks remains to be seen. If history is any indication, it has not paid to bet against this pup when exhibiting this type of pattern.
[Source: MachTrader]

Friday's strength bode well for our GLD 121-124-127 butterfly as outlined in Rolling on the Fly. With a pop to $123, GLD settled nicely into our profit zone. While it would have been nice to have seen it nestle close to $124 into the close, it's rare to throw on a butterfly and see the stock pin right at the middle strike. Trader's using butterflies would be well served by learning to take partial profits.

For related posts, readers can check out:
Evolution of a Bullish Risk Rocket
Christmas Musings and a Trade Journal


tim said...

Hi Tyler,
a surprise in gold, no bull run. And the market cant move up on the Chiba news. I have never seen more TA and continued fundamentals supporting a sell off. I have done well at theta trading and have therefore not needed to ask any questions the last months. But if this thing heads down and the SPX breaks 1040 I think the elevator down could easily go to 880.
Can you give option suggestions for a fast moving downward market. I have bought some OTM puts, but how about repairable strategies that are not just directional. Maybe you could consider that as a blog subject?

Tyler Craig said...

Hey tim,

No bull run just yet in gold, but one down bar that didn't break any support levels isn't enough of a signal to throw in the towel on the bull side yet in my opinion. We'll see if gld hold its prior pivot low if we retrace that far.

1040 is certainly a big level on the SPX, but I think it may be awhile before we get there. As far as option suggestions for downward markets, right now bear risk rockets are my strategy of choice. Straight long puts and selling call spreads are two others I'd consider.

Are you looking for repair strategies on long puts or some other position?

tjktrader said...

Good day Tyler,
Good call and hold on GLD. Monday was a big bearish bar like on 12/4, but the rest of the chart is different this time.
I kept my puts and was rewarded this week. After today did not exceed 50% of yesterdays bar I remain bearish and kept my puts. I have sold some front month OTM calls to offset time decay on my DEC puts, in case we go sideways for awhile.
But if we move higher I will need a repair strategy for my puts, can you advise?
I also want to add to my bearish positions if we start to drop and break ES 1040.
Would you suggest some PUT vertical spreads once a move is in progress and the VIX is already moved higher?

Tyler Craig said...

Do you mean you sold some front month OTM puts against your longer term puts?

As far as repair strategies for puts, you may consider selling shorter term puts against them (as you may have already done) or you could roll into a vertical by selling lower strike puts in Dec. Both techniques lower your position delta so you're somewhat hedged if the market rises.

I'll do a post elaborating on potential adjustments next week so stay tuned for that.

Regarding your put vertical question, I assume your refering to buying a put spread to profit from a continued fall in SPX? If so, then yeah that's a legit strategy for profiting from a drop in the market. As to whether that's the "best" route to take it really comes down to what you're trying to accomplish and personal preference.


Gold is headed to 5000.