Short term
Trade view / 01 June 2016 at 1:36 GMT

#SaxoStrats: SPDR gold shares ETF looks oversold

Global Head of Listed & OTC Derivatives Sales / Saxo Bank
Denmark
Instrument: SPY:arcx
Price target:
Market price:
nnn
 
Background

The ETF SPDR Gold Shares is now oversold and is giving us a buying signal in stochastic term.

Let's buy the June 16 116/118 Call Spread to play a bounce back on Gold with limited downside risk.

GLD Daily Bar Chart

Source: Saxo Bank

Management and risk description

Entry

Buy 10 GLD Jun16 116/118 Call Spread at $0.77

Buy 10 GLD Jun16 116 Call at $1.48

Sell 10 GLD Jun16 118 Call at $0.71

Maximum Profit limited

Maximum profit equals the short Strike Price minus the Long Strike Price minus the Premium Paid.

So the Maximum profit equals 118 - 116 - 0.77 = 1.23.

For 10 Call Spreads, you pay a premium of $770 ($0.77 times 100 ETF times 10 lots) to realise a profit of $1,230 ($1.23 times 100 ETF times 10 lots) if the market trades at $118 or above at expiry.

ROI if market closes at $118 or above at expiry

The return on investment is the profit/premium times 100. That equals $1,230/$770 times 100' which equals 159.74.

Maximum loss is limited

The maximum loss is limited to the premium paid. The maximum loss is $0.77, or $770 for 10 Call Spreads.

Breakeven point at expiry

Long Call plus Premium Paid. That is, $116 plus $0.77 equals $116.77.

Target: 118 or above.

Time horizon: 17 days.

Five-year chart
GLD Daily Bar Chart
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— Edited by Robert Ryan

Non-independent investment research disclaimer applies. Read more
01 June
Jeff Carnes Jeff Carnes
"SPDR Gold Shares"

I've been trying to do my due diligence on this fund. Anyone know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create such a glaring audit loophole? I have not heard a single good reason for the existence of this loophole thus far. It also doesn't help that GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion.

I also recall there was a well documented visit by CNBC's Bob Pisani to GLD's vault. This visit was organized by the management behind GLD to prove the existence of GLD's physical. However, the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not show up on the bar list dated at that time. It was later discovered that this "GLD" bar was actually owned by ETF Securities.
01 June
Jeff Carnes Jeff Carnes
I also recall there was a well documented visit by CNBC's Bob Pisani to GLD's vault. This visit was organized by the management behind GLD to prove the existence of GLD's physical. However, the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not show up on the bar list dated at that time. It was later discovered that this "GLD" bar was actually owned by ETF Securities.

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