12:20pm (EST)
We have been warning of another Gold breakdown since late May and following a 2-week trading range, we said this could be the week the yellow metal folds like a cheap lawn chair. With today’s $70 drop to $1,297 an ounce, we have profits to take on a put option trade we recommended to play the breakdown.
We suggested playing the Spiders Gold Shares (GLD, $125.20, down $5.39) for a drop to $125 and although it took a little longer than we wanted, the breakdown finally came ahead of June expiration on Friday’s close.
We recommended the June 125 puts (GLD130622P00125000, $1.00, up $0.88) in late May and as you can see from the option quote below they are up a whopping 725% today after opening at $1.19. These options closed at $0.12 yesterday and on Wednesday morning we had this to say about the position:
“These options are at 15 cents and traded to 20 cents yesterday. We have said this could be the week gold drops like a rock and these options popped on GLD’s $1.64 drop. Set limit orders to close the trade at 50 cents or better.”
Well, as you can see, we got a little lucky on the open as our limit order was filled at $1.19! This is why we always stress using limit orders when playing options and why sometimes we may keep a trade open even though it may be down more than 50%. If you believe in your chart work sometimes you have to let your positions ride and that is what we did with this trade.
Of course, we have been super hot since late April as we are now 24-4 since we have said we would be entering one of the best time in years to trade options. We have been incredibly accurate in calling the market’s moves and with Q2 earnings up in July, we can’t wait to trade the continued volatility. For those who thought the summer doldrums would be boring, guess again.
We have also said we will be in PERFECT position to play the market’s next major move and while today selloff looks nasty, the bulls are still holding support. This could change by today’s close and if it does, we have possible put options in place to play a further downside move.
The Dow is down 203 points to 14,908 while the S&P 500 is off by 25 points to 1,604. The Nasdaq is declining 48 points to 3,394. The bulls will be trying to hold Dow 14,850; S&P 1,595; and Nasdaq 3,375. A close below these levels would be bearish but we have seen support get stretched as we are still in the trading range despite today’s panic.
As we mentioned earlier, we have some current trades in motion and we have another Profit Alert that we didn’t discuss out here on a trade that made us nice double-digits.
We could have a New Trade or 2 today so please stay close to your email inboxes or follow us on Twitter to know the second we go to press! Subscribers, check the Members Area for the updates and Profit Alerts!
