FX:XAUUSD   Gold Spot / U.S. Dollar
In a previous post regarding FXE             , I described an options strategy called "laddering." Short laddering can be done both on the short put side, as well as on the short call side, and can be done using naked shorts or vertical credit spreads. It can be used for a number of purposes, such as reducing cost basis in an underlying stock you own, to work a directional bias you have, to seek assignment of an underlying at a favorable price or alternatively sell premium at strikes for which you do not seek assignment, or as a mechanism to reduce loss in a short position that you had to roll out and down/up and for which you could not obtain a credit.

A little bit of history is in order. Some time ago, I entered a short put vertical position in GLD             with 107 as my long put strike and 110 as my short put strike (i.e., a 107/110 short put vertical). On 7/20, price breached the vertical. My choices were to either (a) roll the 107/110 out to a later expiry for duration and credit with the assumption that, at some point in the future, gold             would turn bullish and that trade would work out; (b) roll the 107/110 out to a later expiry and down to different strikes; or (c) close the position out entirely and move on. I chose the second option, rolling down and way out to the Dec 90/93 expiry, paying a debit for the privilege.

When I have to pay a debit for rolling a trade for which I originally received a credit, I generally attempt to finance that debit, in part or in whole, with an additional setup so that I, in essence, have expended nothing to increase the likelihood that the rolled setup will succeed and reduce any loss I have experienced.

In this particular case, on or about 8/1, I opted to ladder short call verticals in GLD             over the next three monthly expiries -- Sep, Oct, and Nov. Each short call vertical was set up with the short call strike of the vert at or slightly below the 1 SD             line for the given expiry, with the long call leg 3 strikes out from that, so I entered a Sep 110/113 short call vert, an Oct 112/115 short call vert, and a Nov 114/117 short call vert.

The notion is to take these off at or near max profit, thus reducing the loss experienced by having to roll the breached 107/110 short put vert down and out. Naturally, I'll look at adding additional short call verts in laddered fashion as time passes in the event GLD             continues lower, while at the same time keeping a watchful eye on the short put vert end of things.
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