How to play the Gold breakout with limited loss.
So we have seen gold break out of this narrowing pennant range and attract some flight to quality buying as equities cave in. Although the technical outlook continues to improve (even more so when $1240 is cleared) there is always a danger of running headfirst into a market that has seen a parabolic extension in such a short time frame.
For people buying futures there is always the danger that a sharp retrace in price kicks you out of the game before the uptrend resumes, leaving you on the sidelines with no skin in the game.
The following option strategy looks fair risk/reward. Based on Dec18 Expiry with 5 weeks to run.
Buy 1x Dec18 1250 call option Price $10.50
sell 1x dec18 1280 call option Price $5.40
For an initial outlay of $5.10 (+dealing costs) you have potential upside of $25 per oz. So whilst it pays out 5/1 at optimal settlement (anything above $1280) the beauty is that you have 5 weeks to take restructure/hedge around the position. And don't forget, you can always close the trade anytime between now and expiry.
For people buying futures there is always the danger that a sharp retrace in price kicks you out of the game before the uptrend resumes, leaving you on the sidelines with no skin in the game.
The following option strategy looks fair risk/reward. Based on Dec18 Expiry with 5 weeks to run.
Buy 1x Dec18 1250 call option Price $10.50
sell 1x dec18 1280 call option Price $5.40
For an initial outlay of $5.10 (+dealing costs) you have potential upside of $25 per oz. So whilst it pays out 5/1 at optimal settlement (anything above $1280) the beauty is that you have 5 weeks to take restructure/hedge around the position. And don't forget, you can always close the trade anytime between now and expiry.
