I exited the long leg for $5.55, a 44.8% loss on debit.
Shares declined by 5% over 136 days, or a -13.4% annual rate. The options -- both the long leg and the short legs -- produced a -1.6% loss on debit for a -4% annual rate.
Here is a summary of all short legs on this position:
|GLD||diagonal, short leg|
|option description key: long/short, call/put, strike, series|
The exchange-traded fund SPDR Gold Trust (GLD), which tracks the price of bullion, closed above its 20-day price channel on Thursday, sending a bull signal with low historical odds of success, suggesting a non-directional trade.
[GLD in Wikipedia]
GLD has completed five bull signals in the past year. Only one was successful, yielding 0.1% over 25 days. The four unsuccessful signals on average each lost 2.8% over 20 days. The success rate is 20%.
Click on chart to enlarge.
|GLD at 10:55 a.m. New York time, 30 days hourly bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
A bull signal with implied volatility in a low percentile suggests a covered call as the best vehicle for trading GLD.
I shall use the LEAPs variant for the covered call, which uses long call options expiring a year or more out instead of long shares. This greatly reduces the overall cost of the position. I shall use the JAN 17 series of options, expiring Jan. 21, 2017, for the long leg of the position.
For the long leg, I used the $109 JAN 2017 call, with a $10.06 premium per contract.
For the short leg,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money
The premium is $1.42. The stock at the time of purchase was priced at $109.57.
Decision for My Account
I've opened a covered call LEAPs variant on GLD as escribed above.
-- Tim Bovee, Portland, Oregon, Sept. 25, 2015
My volatility trading rules can be read here.
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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
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