Trading Nation

One trader’s unusual plan for making money off of gold

How to play gold with more rate hikes coming

Gold will remain stuck in a rut, according to one chart-minded trader, but he still has a way to play the yellow metal.

With gold falling more than 1 percent since the Federal Reserve announced a rate hike on Wednesday, Todd Gordon of believes the possibility of three subsequent increases in the coming year could keep the metal from rallying.

This is especially true, says Gordon, in light of the dollar surge after the Fed decision. Rate hikes generally mean a stronger dollar, and a rising greenback tends to be bad for gold prices.

Looking at the chart of the gold-tracking ETF GLD, Gordon believes that upside will be capped at $109, as this is the level from which gold recently fell.

On the downside, Gordon thinks the GLD could fall as far as $105, but probably not lower. He says that the range at which it spent late 2015 and early 2016 should serve as "support," and this range roughly tops out at the $105 level.

Having defined his levels, Gordon moves on to the trade. He uses his expectation that the GLD is unlikely to fall below $105 or rise above $109 to set up an "iron condor," a somewhat complicated options structure that combines the sale of a call spread with the sale of a put spread.

Specifically, he sells the Jan. 6 weekly 109-strike calls and buys the Jan. 6 weekly 110-strike calls, while also selling the Jan. 6 weekly 106-strike puts and buying the Jan. 6 weekly 105-strike puts. If the GLD closes between $106 and $109 on Jan. 6, he will get to keep the entire 58 cents per share that he took in. Yet if the ETF closes above $110 or below $106, he will lose 42 cents per share.

"This has a slightly bearish bias, but for the most part we're playing a range, collecting premium above resistance and below support," he explained Monday on CNBC's "Trading Nation."