Options with Gold

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Back on October 6, 2021 I posted an article titled, Embrace Volatility: Three Inflation-Based Options Strategies that Bet on the Financial Sector.

Within the article I discussed three different options strategies on the financial sector, as represented by the SPDR Financial Sector ETF (XLF). The beauty of options is that each approach either was, or remains, profitable.

Since then I’ve posted a few trade ideas on gold and another inflation hedge, each of which have made profits. Here is the most recent post, where I applied a bull put spread:

Inflation Trade with a Little Room for Error

As I’ve stated before, I’m not going to get into the lengthy details on my inflation stance. As a quant-based options trader, I fully understand my opinion on the matter means little; it’s more about the strategy I employ that truly allows me to make a return. So today, as always, I’m going to focus on strategy and statistics.

As we all know, inflation is here. How long it lasts is anyone’s guess. Hell, the Fed for months said we shouldn’t worry; now it seems the rhetoric has changed. None of it matters, because the facts state what we need to know and those show that inflation is happening at an ever-growing pace.

The real question is, how can we take advantage?

Just a few weeks ago I posted an inflation trade idea based on gold. The return on the trade just a few weeks later was 8.2%. Certainly not a “make you rich” trade, but hey, I don’t play in that arena, as it’s truly for suckers that don’t truly understand statistics. I want to be the casino, the insurance company or the seller of lottery tickets. Why? Simply stated, the law of large numbers. Moreover, I was able to take some decent short-term profits off the table when most market participants were struggling.

Remember, one of the key reasons why everyone should learn how to use options is to know how to hedge. And options truly offer us the best opportunity to hedge.

Today I’m going to take the same approach as my last trade idea, keeping my probabilities of success at around 80%.

For the past year gold, as seen through SPDR Gold Shares ETF (GLD), has been trading in a range between roughly 160 and 180.