Gold Hits a Snag and Falls Below 9-Day MA Support: Expecting a Move? Here’s a Strategy and Evaluation

June Gold hit a High of 1287.80 recently and then retreated to just below the 9-Day Moving Average. Like the E-minis and Crude Oil, the Implied Volatility of Gold has fallen dramatically. For those with the view that the markets current state of market limbo is temporary, there are Long Options Strategies (Volatility) which may be of interest. Many readers have the opinion that being Short Options is a terrific strategy; however, in times of mayhem, without the appropriate risk management, it can be a disaster. Finding the right Options Strategy, for the appropriate time, enables traders to pick between Long and Short Strategies in order to find one which meets their risk/reward needs.
There are many methods of trading. Whether trading direction or volatility, creativity provides the opportunity to build the perfect Options Trading Strategy. In the case of a trader who is unsure of direction, but believes a move is imminent, the Long Strangle provides a Long Volatility position which gains Delta as the market moves towards one of the Strikes. The Chart below shows the detail of a Long Strangle for May Gold Options. The Options are based on the movement of the June Futures Contract (they are called Serial Options). The Strategy shown and there are numerous modifications, calls for the Purchase of the May 1300 Call and the May 1200 Put. The 4PM prices are shown in the Chart. The key to the transaction is that the Implied Volatility of the Options that one Purchases is lower than the Historical Volatility of the Underlying Gold Contract. If the Historical Volatility maintains the pace of the last 20 Days, the purchase of the Strangle should provide an opportunity to profit. If, however, the trader believes that the Gold Market is experiencing a lull, this strategy is not for you.
As with all Trading Strategies, it is essential to implement a risk management guide before the implementation of the trade. For large traders, they might Puchase a fair number of Strangles so that they may Buy and Sell Futures against their position as their Deltas change. Keep in mind, that at the current level, the trade has almost no Delta. As the underlying moves toward one direction or the other, the Deltas of the position will increase and should this happen rapidly, the value of the Strangle will in all likelihood increase. When looking for a spot to exit the position, one could use a Chart Point, a value of the Strangle at which they are no longer willing to watch it deteriorate, a cross-over of Implied versus Historical Volatility or any other risk management technique which has a distinct level for cut off. Our Options Guide PDF discusses some of the concepts that have been discussed and are essential for Trading Options for those ensuring due diligence. Our goal at is to help traders think about their Options Trading in a manner that provides the most efficient way of establishing a position. Contact us to find out about our Option Trading Webinars which are designed to meet your individual needs. Our 30 year of experience in Options Trading will increase the profitability of your trading.

Understanding Implied Volatility and the Skew are essential parts of designing Options Trades that meet an individual’s risk/reward requirements. If you have the directional bias, you can create an Options Trading Strategy to meet your needs. Through leverage and liquidity, Options provides speculators a methodology for leveraging their ideas and increasing returns. Contact us and enhance your trading skills with Private Webinar Training Sessions.  As mentioned, there are a multitude of strategies to choose from when trading options. There are strategies to choose from when one has a directional bias and others, like the Strangle, to pick when one is making a Volatility Play.  The key is picking the correct strategy for the moment and putting the odds in your favor. Evaluating liquidity, Implied and Historical Volatility, the Skew and numerous Options Trading Strategies helps every Options Trader improve their likelihood of success. Make sure you have those advantages.

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