Short term
Trade view / 28 July 2016 at 8:25 GMT

Bull call spread on gold

Product Manager, Options Trader, Educator
Instrument: GCV6
Price target:
Market price:

Gold has been on an established uptrend since the beginning of 2016. After peaking at $1380 on July 6, the futures for October delivery (GCV6) retraced down to a low of $1315 and established support.

Overnight, the price of the precious metal rallied, following the Federal Reserve's indicision on interest rates. We believe that gold is ready to form another leg up, and recover, at least, to its relative high of $1380.

Gold in an uptrend since start of 2016
 Source: Saxo Bank

Therefore, we are initiating this 10-point wide vertical call spread on the GCV6 using September expiration options.

GC Sep Options
 Source: Saxo Bank

Management and risk description

Risk is limited to the amount of net premium paid for buying 1,340 for $25.80 and selling 1,350 for $20.10. Use no more than 1-2% risk of account size.


Buy 1 1,340 SEP Call at $25.80 28 days to expiration
Sell 1 1,350 SEP Call at $20.10
Net Debit $5.70

Breakeven = 1,340 + $5.70 or $1,345.70.

Maximum gain = (difference of strike prices)10 points - $5.70 = $4.30.

Maximum loss = $5.70.

ROR = 75%.

Entry: today as two seperate legs - buy to open and sell to open.

Target: underlying to trade above $1,350.

Time horizon: 2 weeks.

— Edited by D. Deacon

Non-independent investment research disclaimer applies. Read more
Hi Georgio.
I have tried this setup and have got -600 DKK as a result because of the provision (15 US$ each way on each call option) and the difference in the US$ kurs at the moment of the execution even I have executed closing of the both position within seconds at the 1349. Not even close to break even.

My setup was:
Buy 1 1,340 SEP Call at $19.50 closed at 27,00 (1349)
Sell 1 1,350 SEP Call at $14.50 closed at 22,20 (1349)

Did I do something wrong?
Image attached ( there are 2 other calls I have tried the same day on the image- please , do not take them into account: Call at 21,20 and 24,10)
BR Irina
Georgio Stoev Georgio Stoev
Hi Irina,
thanks for following up on the trade. As described in the above text, this is a 10 point-wide spread, 1340-1350. The max profit is limited to the spread-net debit or (10-5.70) 4.30 per contract. So It looks like you entered for a net debit of $5 (19.50-14.50) for a max gain at EXPIRATION of $5. Eventhough the underlying future closed on Friday at $1353 or above our short strike price, there is still 23 days worth of time value in the options. This is where the rest of the gain will come from. So now that the price has moved above our target we will wait to capture that time value for about 2 weeks plus. We want to capture at least 80% of the max gain or $3.44 (4.70 x 80%). Hope this clarifies your question.
Hi Georgio
Thank you for your answer. As I understood, I had to wait for the expiration date and not to sell when the target was met. And I have sold .
Better luck next time (it was my first vertical bull spread and option trades ) :-)
Georgio Stoev Georgio Stoev
It's happened to me in the past, as well:). If you like to learn more, pls do check the webinars on vertical spreads from earlier this year.



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