That resistance goes back to November last year (Chart 4 below). GLD is back below its 50-day moving average.
Once again, if gold is living in fear of a Fed rate hike in the upcoming FOMC meeting, then this fog would not be lifted until the 17th. As have been the right strategy the past couple of weeks, covered calls may still be the way to go.
To recall, July 17th 111 puts were hypothetically sold for $0.60 on July 7. Post-assignment, it was an effective long at $110.40. This was then followed by four weekly covered calls, including one last week, earning a combined $3.11. The effective cost has dropped to $107.29.
The choice for the gold longs is two-fold: (1) exit for a small profit of $0.20, or (2) stay with it but deploy options to significantly reduce the effective cost.
Weekly September 11th 106 calls bring $1.92. These are in-the-money calls, so it is possible they get called away. And that is the idea, given the price action in gold currently. If called away, it ensures a profit of $0.63. Fine, we will revisit the trade later. If not called away, GLD ($107.49) needs to drop 1.4 percent during the holiday-shortened week. Last week, it lost 1.1 percent. If GLD drops below $106, the effective cost drops to $105.37.
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No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
