dime

OPENING: GLD OCT112/AUG 122 Diagonal / PMCC

AMEX:GLD   SPDR GOLD TRUST GOLD SHARES NPV
Opened a 'poor mans covered call' on GLD .
Going long on this alternative asset class to diversify the portfolio. My overall bias is higher gold based on the technical price trend since 2016 and expect we'll soon see a reversion towards the mean/median price range.

Bought the OCT 112 CALL at 86 deltas, 105 days to expiration as a stock replacement for 8.12
and sold the AUG 122 call at 26 deltas, 42 DTE for 0.67
net debt: 7.45. The debt paid is 75% the $10 width.

breakeven: Long call strike price 112 + net debit paid 7.45 = 119.45
Max loss on setup: 7.45
Max profit on setup: width of call strikes - net debit paid = 2.55
ROC at max profit is 34%
Credit premium on net debt = 9%

Notes: If I don't close the whole trade before the Aug expiry (or the short call expires worthless) I can sell another call in the Sep cycle to further reduce my cost basis on the long Oct call.

In comparison to buy the conventional covered call play on GLD would cost 11,880 - the 67 short call for 11,813, or use over 8000 in buying power. The call credit premium is a meager 0.567% return on capital.

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More info on this strategy :
https://www.tastytrade.com/tt/learn/poor...
Trade active: Needless to say this trade is a big fat loser... at potentially -$400 at this point , losing half the initial debt paid.

On Jul 31 I rolled the 122 Aug short call down and out to Sep 120:
SOLD -1 DIAGONAL GLD 100 21 SEP 18/17 AUG 18 120/122 CALL @.50 ISE
Rolled down and out, closing the short Aug call for 0.09 and sold the Sep 120 for 0.59 for a net credit of 0.5.


Today it's time to roll SEP/OCT GLD diagonal into vertical or close and admit defeat.

1) I could take the whole thing off for a nifty loss 2) risk the remaining $3 value of the OCT 112 long call (70 delta)

But what to roll the short call to? Was short the Seo 120 ...only .07 value left in that? It looks like shorting an Oct Call < 120 brings in more credit but also lowers any profit target to < my breakeven.

But to close for a small scratch at this point rather than 450 loss would be great.

Shorting a much lower strike call (from 113 to 119) for Oct reduces the potential max loss with collecting a higher credit. But it also means locking in a small loss if GLD closes above the short strike.

Decisions ...
Forgot to update a roll on Jul 31
SOLD -1 DIAGONAL GLD 100 21 SEP 18/17 AUG 18 120/122 CALL @.50 ISE
Rolled down and out, closing the short Aug call for 0.09 and sold the Sep 120 for 0.59 for a net credit of 0.5.
Reply
The IV is to the low side on GLD at 10.5 here with OVX 10.43 for an IV rank of 19%. Lower IV on the long call gives a lower overall debt paid. With IV expansion the long call could be worth more later on when sold.
The IV in gold tends to rise as the commodity rallies which is the opposite of what you find in equities.
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