the November 2016 edition of this newsletter!
This is a monthly newsletter packed full of tidbits not found on the
website. This is my attempt to stay connected with those who find value
on the the website and want more.
Since this newsletter is published (nearly) every month, you are always
date and empowered to be a better trader. That's because I'll be
sharing lessons I've learned over the prior month, answering questions
from other viewers and providing a spotlight on useful websites
and trading tips. If you find this newsletter valuable, pay it forward
it to your options trading friends.
To access previous issues of the newsletter, click here.
Trading on Gold (GLD) - November Newsletter
|This month has proven hard on the broad market in general. As we'll
discuss later, the longer term up-trend has been broken. So how will the
market shape up as we head into the end of the year?
In this edition we'll tackle that question, look at trading gold and
answer a question that was recently submitted by a reader.
Finally, we'll close as usual with a Market outlook for you. For more
By the way, I've begun naming the newsletters based on the
Options Strategy Focus title so it's easier from now on to locate them
in the back issues list. I've also updated all the 2016 newsletter titles to
reflect the Options Strategy Focus title. At some point soon I hope to go back and re-name
remaining newsletters for the prior years.
I'm always interested in receiving feedback on the newsletter. If you
haven't done so recently, please consider taking a few minutes to visit
feedback page and let your voice be heard. This can be done
anonymously so please consider how you can help make the newsletter
Options Strategy Focus: Trading on Gold (GLD)
| This section of the newsletter will focus more deeply on the
details of some of the options strategies I use in the tutorials and
other topics related to options trading.
This month, we'll be looking at some trade ideas on gold. More
specifically, the ETF having the symbol GLD. GLD is an ETF that actually
represents gold itself and is backed by actual shares. There are other
ETFs that track both gold itself and gold miners. I happen to like
trading the GLD. One reason is that it has robust activity on the
options, which means I can use all my favorite premium selling
strategies. Consider this an example of applying the principles of
"breaking out of the rut" from last month's Options Strategy Focus.
Before any further discussion, I must emphasize the following:
ideas are for education purposes only. No strategy
discussed here should be taken as a recommendation to buy or sell
options. Always do your own research and make your own trade plans.
GLD has a tendency to be a somewhat volatile stock (ETF). If you go
back and look at a chart, you can see lots of cases where GLD made
strong moves either to the up side or the down side. This has made for
some great opportunities to trade off that behavior. I want to discuss
two of my favorite strategies when trading GLD.
Strategy 1: Diagonal Spread
I tend to not use this
strategy a lot because it is a fairly long term strategy. However, I've
found it to be a particularly good strategy for trading GLD when the
trend is behaving as I expect. Rather than discuss the entire trade
here, I want to refer you back to an old trade tutorial I did back in
2010. While the trade itself didn't turn out
especially profitable, the
discussion around the analysis and setup illustrate both the mechanics
and the potential of this strategy. You can find this discussion on the
Call Diagonal Spread on GLD page.
Let's talk about some of the considerations of trading the a diagonal
spread on GLD.
Strategy 2: Short Vertical Spread:
- Diagonal spreads are a debit strategy, similar to calendar spreads.
That means you need to allocate some capital to buy the spread. In the
case of a diagonal on GLD, this can be anywhere from $400-600 per
contract. This may stretch your money management and limit the number of
contracts you can trade.
- Strong moves in gold and in the underlying ETF can cause the value
of the position to change quite a lot. You need to monitor and take
appropriate action. Use good technical analysis and exit strategies
manage the trade.
- This is a longer term strategy. As such, it can take 4-6 weeks to
fully play out. Markets can move lots of different ways over that time
and can also wreak havoc on your psyche as you watch things move.
At the risk of introducing a more mundane strategy (i.e. one that I use
all the time), the short vertical spread can be a viable choice when you
want to take advantage of quick but relatively short moves. I've tended
to use this strategy when my longer term outlook is less clear and I
just want to capture the short term moves.
Considerations for this strategy include:
Strategy 3: Calendar Spread
- If you trade the short vertical spread, this will hardly be anything
like breaking out of the rut.
- You may want to be sure of the outlook and duration of the trend. A
short vertical spread can waste up side potential if
the trend is longer
- With the quick moves often found in GLD, you may want to establish
some mechanical exits (stops) to allow you to get out when sudden
The last strategy I'd mention is the calendar spread. I usually don't
consider this as a possible trade on GLD, but there is one case where I
think it can do well. Consider the scenario where volatility is
relatively low and GLD has been trending up. What happens if GLD
suddenly sells off? A rise in volatility for one thing. Recall that the
calendar spread is a 'vega positive'. That means the value of the spread
increases with a rise in volatility. So, I tend to consider the calendar
spread when I'm anticipating a sell-off.
Here are a few things to keep in mind.
We've quickly covered three strategies for trading GLD. If you like to
trade precious metals, this is one way to do it while keeping with
premium selling strategies. Further, it's a way to push yourself if you
find yourself falling into the rut of trading just one strategy all the
time like I do.
- You will typically do better with this strategy with put calendar
- The challenge is figuring out a reasonable target price. You want to
leave enough time and movement for the trade to develop.
- This is also a longer term trade. Given the nature of calendar
spreads, you really want the short strike to be near expiration for best
Happy trading this month!
Back to the table of contents.
Answers to Your Questions
|I frequently receive email from visitors to the site with
that aren't answered directly from content on the site. Many of these
are great questions and I
think the answers would be valuable to all readers. Each month I'll be
posting one or two questions, so stay tuned!
Any chance you have a list of the ETF's that you follow on a regular
A: There are a couple of ways I'd
like to answer this. For those of you who have been following the
website or newsletters for some time probably are aware I typically
follow and trade just a few ETFs. These are the
DIA, SPY, IWM and
occasionally the GLD. These are the index tracking ETFs for the broad
market. I tend to prefer to do this given my time availability. However,
there are a lot of ETFs out there that can be traded. Many have options
so for the options trader, this is great news.
A good starting point from my perspective is to start on the web site
Index Option Trading page and the
ETF Options page. These provide a good foundation of the concepts of
trading index options and ETFs in general. Finally, I recorded a YouTube
video sometime back called
Finding Optional ETFs. This actually demonstrates how to build a
watch list from a list of optional ETFs using
the thinkorswim Option
None of this really covers how to build a strategy around ETFs but
that's where you need to spend time assessing your own style and trading
goals. How active are you in trading? What strategies will you likely
employ? What are the historical trends of the candidate ETFs?
I really like ETFs for a lot of reasons so hopefully these pointers will
help you get started on the road to successful options trading using
Help me ensure we have an interesting question or two to respond to
next month. Submit your questions at this
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table of contents
|In concluding this newsletter, I want to
provide a brief outlook
for what I'm
expecting for the next 20-40 days. Before I do, I need to insert the
is not a recommendation to buy or sell stock, ETFs
or options. It
is simply my opinion of what I expect and how I plan to trade.
expectations may change if the charts indicate something different
during the month.
After months of holding to the up trend, we finally saw a break of the
trend. Things are about to get interesting.
In the October newsletter, I summarized my outlook as follows:
"...As you can see, the dominant trend is still currently in place. However, I'm less certain that we'll see a test to new highs. We have two key themes to consider. First is that we're heading into election season. It's a good bet that news and debates will cause the markets to swing. On the other hand, we're on the edge of the season that typically kicks off the 'Santa Clause rally'. So, which is it? I'm honestly not sure. At this point things could go either way. Notice we're heading into a triangle trading pattern. Furthermore, we're getting closer to the tip, which will need to resolve up or down....."
Here's how October played
We spent the majority of the month pretty much trending sideways. That's
made it good for trading neutral strategies like iron condors. Then, the
last week happened. Notice that the up trending line was initially
broken simply by running sideways right through. This up trending
support has been kind of a line in the sand indicating whether to trade
bullishly or bearishly. I can safely say we've turned a corner on the
Now that we've broken that up trending support line, it's time to look
for the next level of support. Right now, there is horizontal support
pretty much right where we're at (give or take 10-15 points). If that
fails, there's always the 200 day moving average. I frankly wouldn't be
surprised to see the 200 day moving average tested.
isn't any kind of wide spread panic so the selling may likely just be
more election jitters.
Given that we're kind of in the middle of a move, your choices are to
wait it out or jump in. Not great choices I know. My plan is to wait
things out for now. I have some trades in play I'm waiting to close but
I'll be holding on for a week or so before I make any more trade
As always, do your own analysis and whatever trades you enter, use good
money management and have exit strategies in place in case you are
wrong in your analysis. It's a good practice to be prepared with trades
in either direction but not to act without confirmation.
Remember to stay nimble and alert. Make a point of doing market
analysis every day, especially if you have open trades. If you choose
to enter any trades, be sure to do your own analysis and follow your
rules for entry and exit.
on technical analysis.
Options strategies I use
Be sure to take time to
feedback on the newsletter.
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table of contents
|I'm adding a new section to the newsletter. Feel free
to disregard if you aren't interested in product information.
One of the more recent additions to the portfolio of services and
products is the Live Web sessions. These sessions are recorded and and
available for a very reasonable price of $12 per session. I've created
a Newsletter Special. If you add all 4 sessions to your
shopping cart, you can get 4 sessions for the price of 3 by using the
discount code: WebEx4Pack
Some time back, I released the second for sale
video. The title of this video is "Mastering Short Vertical
Spreads". I now have a total of two strategy training videos for sale .
Here is a quick
summary of each.
An Introduction to Options Spreads
This video provides a good coverage of the basics of options spreads,
including why they are preferable to other options strategies
buying options and selling naked positions. What I believe makes this
video valuable is that it combines presentation with interaction. Once
you have the basics down, you will be well-prepared to start digging
deeper into some of the options strategies employed on this website.
For a relatively small cost of $29, you can
own this video, which offers over 40 minutes of material. This package
is very easy to install and use.
more information or to purchase the video.
Short Vertical Spreads
The focus of the video is on one specific strategy, including all
aspects of of the process. This includes:
I'm excited about this project. Many know this is my go-to strategy for
After watching the video, I'm certain you will understand why.
- Understanding the construction and how the trade progresses
- Selecting the long & short strikes
- Planning entry & exits
- Managing the trade once entered
- Back testing
- Creating a trading system with the strategy
more information or to purchase this video
Special Discount offer:
If you'd like to own both videos, you can do so for a bulk discount.
Simply add both videos to your shopping cart and then enter the
discount code 'combo10' to receive $10 off your shopping cart
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