Mitigating GLD

Here's the situation with GLD.

I entered on a bb/mfi bear signal at 112.30. My vehicle was a December bear calls spread, long the 111 call and short the 110 call. That spread will be profitable at the Dec. 19 expiration if GLD's price is at about 110.50 or below.

On the chart, GLD is trading at about 115.70, has blue skies to the upside (no support for the bearish position) and downside resistance at 113, 110 and 106. The price today is showing a hesistation pattern on the candlestick, but it's the day before Thanksgiving, and I don't give lack of price volatility much credence as a signal today.

To be profitable now, GLD must fall by 4.5%, a respectly large move.

So, no joy on this chart.

I have these possible actions, I think:

• Do nothing. Continue to hold the position and hope that GLD will drop after the holiday.
• Close the spread for a loss of 0.28.
• Sell a put (which is profitable when the stock goes up) and hedge my bets that way.

A 4.5% move is well within GLD's capability in the short term. It's a volatile issue, which is one reason I like it. And there's an argument to be made that GLD is due for a fall after a 25% runup since August. If I still think that GLD is a candidate for a price decline, I should hold the position, and perhaps even add to it at the higher prices of the past three days.

But there are no guarantees that GLD will decline. Sometimes, it just makes sense to take the loss and live to fight another day. By holding the present position, I lose if GLD goes up and also if it just stays put. Out of three possible directions -- up, down, sideways -- I lose on two of them. Not a good position to be in.

Or to mitigate, I could sell a put on GLD. By selling a put, I get an immediate credit, and if the stock rises to above the strike price, the put expires worthless and I get to keep the premium. Selling a put with a 110 strike now would give me a 0.65 credit, for a 1.22 credit total on the spread and the put.

The combined position -- the bear call spread and the short put -- would be profitable at expiration anywhere above about 109.35, with maximum profit at 110. The losses below 108.75 are huge, so there's risk. With this method, I profit if the stock price drops down toward resistance, I profit if shares continue their upward move, and I profit if the price goes nowhere.

What's not to like? Well, the downside risk is huge, far more than the amount in my account. Even if I could place the trade, I won't take that amount of risk.

There are other possible solutions. I don't plan to trade now and will wait until the end of the day, giving time for further study.