One trader’s plan to triple his money on gold

One trader’s plan to triple his money on gold
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One trader thinks gold is headed to break through its current range, and he plans to capitalize on the potential gain.

With the Fed holding short-term interest rates at low levels, and uncertainty swirling regarding the outcome of the presidential election, "gold can continue to push higher," predicts Todd Gordon of TradingAnalysis.com.

The ETF tracking gold, GLD, fell into a range during the summer months, but Gordon said Monday on CNBC's "Trading Nation" that "it looks like we should be able to break the range and continue through the top side."

To capitalize on this expected move, Gordon turns to options expiring in November. He plans to use the election as a catalyst for gold, given that the metal tends to rise as uncertainty increases — since gold is seen as a "safe haven" investment — and uncertainty could rise further as the presidential race tightens.

Specifically, Gordon bought the November 130-strike calls and sold the 135-strike calls, for a total of $1.23 per share, or $123 per options spread. If GLD closes at or above $135 at its expiration, a 5.5 percent gain for the ETF, Gordon will have nearly tripled his money, for a $377 profit.

"We have an attractive risk-to-reward ratio," he commented.

Nevertheless, if GLD moves back below the summer range at about $125, he plans to "cut the trade and protect and premium that is remaining on the options spread."