GO
Loading...

Options Action: Gold

With fundamentals bullish but tecnicals bearish how should you play gold?

Mike Khouw of Canter Fitzgerald suggests a call spread in the Gold ETF . His trade follows:

GLD Call Spread
Buy 125 Jan-2011 strike for $9.15
Sell 145 Jan -2011 strike for $4.05
Spend $5.10

How Mike's Trade Makes Money
Profits Between $145 AND $130.10
Losses Below $130.10

Learn more about this trade. Watch the video now!

For even more on call spreads here’s a report filed on Fast Money.

You already know there’s always two sides to a trade: “buyer” and “seller,” but there are also two ways to make a trade: “buy stock” or “buy options”... and by using options, you can make a directional bet, at a discount.

Let’s say you think a stock is ready to surge.

You could go out and buy up 100 shares – which at $100 bucks per share would cost you 10 grand. Or you could make a similarly bullish bet -- but on the cheap -- using what’s known as a “call spread.”

Here’s how it works:

First, you buy a call at the same price the stock is trading – a-k-a the “at the money” strike. And although a lot cheaper than 10 grand – it will still cost a pretty penny.

So to help lower your cost even more –you then sell another call at a price well-above where the stock is trading.

The pros: You get to make a bullish bet at a steep discount – and limit your losses to the cost of the trade.

The cons: Your profits are capped to the level of the call you sold.




______________________________________________________
Got something to to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send those e-mails to fastmoney@cnbc.com.

Trader disclosure: On May 12, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (BAC), (DRYS), (INTC), (TIE); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Kelly Owns (FXE) Puts; Kelly Owns (FXB) Puts; Terranova Owns (PFE), (GLD), (XCO), (SWN), (TER); Terranova Owns Gold; Karabell Owns (GOOG), (AAPL), (IBM), (CSCO), (TIE), (GS), (C); Levy Owns (GS), (GS) Calls

For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (DRYS)

For Brian Kelly
Kanundrum Capital Is Short (IBM)
Kanundrum Capital Is Short (DB)
Kanundrum Capital Is Short (BCS)
Kanundrum Capital Is Short Yen
Kanundrum Capital Is Short Euro
Kanundrum Capital Is Short British Pound
Kanundrum Capital Is Short Swiss Franc
Kanundrum Capital Is Short (FDX)
Kanundrum Capital Is Short (DE)
Kanundrum Capital Is Short (XLK)
Kanundrum Capital Is Short (XLI)
Kanundrum Capital Is Short (XLY)
Kanundrum Capital Owns (TLT)
Kanundrum Capital Owns (GLD)
Kanundrum Capital Owns (GFI)
Kanundrum Capital Owns (AUY)
Kanundrum Capital Is Long U.S. Dollar

For Jared Levy
Peak6 Investments is Long And Has An Options Position In (GLD)
Peak6 Investments is Long And Has An Options Position In (IBM)
Peak6 Investments is Long And Has An Options Position In (INTC)
Peak6 Investments is Long And Has An Options Position In (CSCO)
Peak6 Investments is Long And Has An Options Position In (VZ)
Peak6 Investments is Long And Has An Options Position In (AAPL)
Peak6 Investments is Long And Has An Options Position In (MSFT)
Peak6 Investments is Long And Has An Options Position In (BA)
Peak6 Investments is Long And Has An Options Position In (BEAV)
Peak6 Investments is Long And Has An Options Position In (GS)
Peak6 Investments is Long And Has An Options Position In (JPM)
Peak6 Investments is Long And Has An Options Position In (C)
Peak6 Investments is Long And Has An Options Position In (BAC)
Peak6 Investments is Long And Has An Options Position In (WFC)
Peak6 Investments is Long And Has An Options Position In (M)
Peak6 Investments is Long And Has An Options Position In (JCP)
Peak6 Investments is Short And Has An Options Position In (GOOG)
Peak6 Investments is Short And Has An Options Position In (HPQ)
Peak6 Investments is Short And Has An Options Position In (DELL)
Peak6 Investments is Short And Has An Options Position In (SWKS)
Peak6 Investments is Short And Has An Options Position In (TIE)
Peak6 Investments is Short And Has An Options Position In (XLF)
Peak6 Investments is Short And Has An Options Position In (DB)
Peak6 Investments is Short And Has An Options Position In (GILD)
Peak6 Investments Is Short And Has An Options Position In (LPX)

For Mike Khouw
Cantor Fitzgerald & Co. Is A Market Maker In (XLF)
Cantor Fitzgerald & Co. Is A Market Maker In (GS)
Cantor Fitzgerald & Co. Is A Market Maker In (MS)

For Stephen Weiss
Weiss Owns (GS)
Weiss Owns (C)
Weiss Owns (HBAN)

For Darren Horowitz
Raymond James & Associates Co-Managed A Follow-On Offering Of (PAA) Shares In May 2008, September 2009
Raymond James & Associates Co-Managed A Follow-On Offering Of (EPD) Shares In January 2009, January 2010, April 2010
Raymond James & Associates Received Non-Securities-Related Compensation From (EPD), (PAA) In Past 12 Months



CNBC.com with wires

Symbol
Price
 
Change
%Change
GLD
---

Featured

Contact Fast Money

  • Showtimes

    Halftime Report - Weekdays 12p ET
    Fast Money - Weekdays 5p ET

Halftime Report