Trading Edge 2020 Portfolio -Trade #4- GLD - Put Debit Spread
Ticker: GLD
Position:
- 21st Feb 2020 Put debit spread
- Long $150 strike Put - delta 0.90 - cost = $3.65
- Short $148 strike Put - delta 0.70 - credit = $2.04
- Net cost/ spread = $1.61
- Running 5x spreads (5x of both strikes)
Net cost = $805
Profit target/ break even/ exit:
- Max profit of the spread at expiry = cost of the spread minus the width of the spread = $1.61 - $2.00 = $0.39 (24% of cost of spread)
- If GLD remains under the short leg of the spread ($148) by expiry (21st Feb 2020) then the spread will have achieved maximum profit
- Break even for the spread at expiry is the long strike minus the cost of the spread ($150 - $1.61) = $148.39 (white line)
- Exit if GLD closes just above the break even point ($149/ Purple line)
- Can also exit the spread earlier if 80% of maximum profit is realized = 0.39 (max profit) x 0.8 = 0.312 + 1.61 (cost of the spread) = $1.92 (more conservative exit price for the spread)
Rationale:
- GLD appears to be stalling around the $148- $150 range
- Stocks are still a little too extended for me to look at longs, however i realize that higher equities are on the cards for the next week or so, this is a more conservative to way to play both the stalling momentum in gold and the relative strength in equities
- The upside is capped with this strategy, however it is still a relatively good risk/ reward, particularly with the higher delta spread (short leg being delta 70)
- TradingEdge
Position:
- 21st Feb 2020 Put debit spread
- Long $150 strike Put - delta 0.90 - cost = $3.65
- Short $148 strike Put - delta 0.70 - credit = $2.04
- Net cost/ spread = $1.61
- Running 5x spreads (5x of both strikes)
Net cost = $805
Profit target/ break even/ exit:
- Max profit of the spread at expiry = cost of the spread minus the width of the spread = $1.61 - $2.00 = $0.39 (24% of cost of spread)
- If GLD remains under the short leg of the spread ($148) by expiry (21st Feb 2020) then the spread will have achieved maximum profit
- Break even for the spread at expiry is the long strike minus the cost of the spread ($150 - $1.61) = $148.39 (white line)
- Exit if GLD closes just above the break even point ($149/ Purple line)
- Can also exit the spread earlier if 80% of maximum profit is realized = 0.39 (max profit) x 0.8 = 0.312 + 1.61 (cost of the spread) = $1.92 (more conservative exit price for the spread)
Rationale:
- GLD appears to be stalling around the $148- $150 range
- Stocks are still a little too extended for me to look at longs, however i realize that higher equities are on the cards for the next week or so, this is a more conservative to way to play both the stalling momentum in gold and the relative strength in equities
- The upside is capped with this strategy, however it is still a relatively good risk/ reward, particularly with the higher delta spread (short leg being delta 70)
- TradingEdge
Trade closed manually:
Spread expired worthless, GLD appears to be continuing the prior move up, will now wait for an appropriate long entry
