NaughtyPines

PLAYING GOLD -- AREAS OF STRENGTH/WEAKNESS TO WATCH

FX:XAUUSD   Gold/U.S. Dollar
As with playing the underlying directly, sometimes it pays to watch levels in a given underlying for options setups as well and to abide by the whole trading adage: "Sell on strength; buy on weakness."

In this particular case, I'm looking to sell short call vertical credit spreads on strength and sell short put vertical credit spreads on weakness and am keeping an eye on two areas: the "strength" area around 1190 and the weakness area around 1050 in XAUUSD             to setup up credit spreads in GLD             or in one of the other cheaper XAUUSD             proxies -- GDXJ             or GDX             . (Although there is some argument to be made that a valid strength area would also be around 1160).

In comparison and contrast to trading the underlying directly, however, I'm not necessarily looking for price, for example, to strike 1190 to sell a short call credit spread. Rather, I'm looking for XAUUSD             to express sufficient strength such that I can sell a short call vertical for a reasonable credit with strikes above that strength area -- naturally, the more strikes the better such that I either (a) have a reasonable shot at the spread expiring worthless; or (b) getting me out of the spread at 50% max profit at some point prior to expiration.

In the "short term," XAUUSD             looks to be of a consolidative mind around that late July "dump zone" around 1100 and is expressing some difficulty making its way past 1100 to the upside or falling apart in tatters back toward 1050. But my hunch is that I'm going to entering short put credit spreads below that 1050 area before short call credit spreads above 1190 (or 1160 if it turns out that is a longer-term area of resistance than initially anticipated).
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