As long as the dollar gets weaker, the markets and GLD will both go up.

But there was an interesting post on another blog Slope of Hope that showed graphically that Gold might be heading towards a retracement. Check it out if you are a Gold Bug.

OK, back to business. The up move today took GLD outside of our upside Calendar break even.

Here’s what it looks like right now.

So what do we do? I don’t want to add more capital to this, even though that is an option.

Step 1. Take off the spread hurting us the most. Take off the 125 Calendar.

Step 2. Now that we are in a better position it is time to determine how to adjust. Easiest way: just add another calendar at a higher strike. We have two options: adding the 131 or the 132.

Here’s the chart when we add 131 call calendars to the 128s we already have:

Double Calendar 128/131 Call GLD Spread

In the middle of the graph we can still make about $450.

Here is the graph of the 128/132 Calendar:

128/132 Double Calendar

The amount we can make on the 132 is lower: closer to $100 but the upside break even is farther away. The 133 Calendar is too far away and the profit at the middle of the graph becomes negative so that is not an option.

Which to choose? Depends on what you think GLD will do in the next week. I normally like to be out of Calendars the Monday or Tuesday before expiration (next week).

If you think GLD will stay put or move down a little, the 131 makes sense. Otherwise the 132 is the best way to save this trade. If we do the 132, and GLD keeps moving up and gets to the break even we will be down about $670 which is around 17%. Right now we are down $450

But hold on! There is another option.

What if we take off the 128 as well and reposition the trade?

Here’s a graph of a 130 – 133 Double Call Calendar. I sold the 125 and the 128.

Double Call Calendar 130-133

I think I like this one best of all: Break evens are 129.39 and 133.77 with the ability to make $400  in the middle of the graph.

Recap: GLD is outside the break even on our 125/128 Oct/Nov Call Calendars. I don’t think GLD will come back into our trade. I think it will stay outside the break evens and so I need to adjust.I am adjusting by selling both the 125 and the 128 Call Calendars for a credit. I entered the trade with a debit. And then I am repositioning the trade by buying the 130 and 133 Oct/Nov Call Calendars. I now have new break evens and the ability to make a decent return.

Calendar Spread Update 10/5/2010 is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Anyway, here are some screenshots of the trade.

GLD Calendar Spread

Breakevens

The trade was to Sell the Oct 125 Calls and Buy the Nov 125 Calls. That sets up a simple calendar. You can use puts or calls, they are interchangeable but the puts are usually cheaper. The plan is to adjust when GLD hits a breakeven. The simplest adjustment is to just add another Calendar Spread at the money. This will double your capital in the trade but will give GLD more room to run around.

This trade was put on today before the FED announcement and since then GLD has moved up about $1.

Weekly Calendar in GLD is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Maybe both.

I have not been in the gold trade myself. But several of my members are, and doing very well so far.

Here is a chart provide by one such member. It shows that the stock of gold companies, miners, etc continue to appreciate evn though gold prices peaked earlier. If this hold true this time, even if gold has peaked, which it does not look like it has, the miners will continue to rally.

Last week a member emailed saying that it looked like GLD had topped out and would I consider selling calls. My answer: No Way.

This train still has momentum on its side as you can tell from the rally today. What I did do on Friday, was to buy a debit spread in GLD.

I bought the Jan 115 Calls and Sold the Jan 118 Calls. I paid about $100 per spread and am already up 17% today. Not bad, but I expect it to go higher and with Jan expiration I can wait for a couple more weeks to see what happens.

Where do you think Gold is headed?

Should You Be Buying Gold? is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com