Short term
Trade view / 18 August 2016 at 8:06 GMT

UPDATE: Bullish gold call spread working

Product Manager, Options Trader, Educator
Instrument: XAUUSD
Price target:
Market price:
Quick update on the Sep 16 1340/1350 call spread. Gold futures are consolidating in a tight range between $1,335-$1,360/oz. As we enter the final stretch of this strategy, with seven days to go, the rapid time decay is helping the spread. 

Ideally we would get out Monday/Tuesday, if not earlier. As a reminder, breakeven is at $1,345/oz at expiration.

Will keep you posted.

— Edited by Michael McKenna

For more on contract options click here.

Non-independent investment research disclaimer applies. Read more
Hi Georgio
Thank you for your update. I still don't get how it is working. When I looked at my position, both calls were at plus. I decided to close both calls because I was afraid that gold goes under 1350 very soon. As a result I'm in minus over 600 DKK again, as at my first try for a couple of weeks ago, when I 've got out too early. How the spread comes into the accounting and when? Was it too early to close again?
Georgio Stoev Georgio Stoev
Hi IL, when we talk about spread trades (buying one option while selling another) they do have defined risk/reward as well as breakeven points, at EXPIRATION. This does not mean that one needs to hold option position through expiration. On the contrary, we want to offset/close these trades before expiration- typically 5-7 days. As the value of an option is determined among other things by its time component, once a price is above the strike we sold, e.g. $1350, this will not produce a max gain for the trade especially if there is still time left in the contract - in your case there were 27 days. So plenty of time value left in the contract that needs to decay in order to gain more from the trade. You may want to review some of the earlier webinars we did on Option Greeks/Pricing. Happy to speak with you as well offline thx!
Hi Geogio
Thank you for the answer. Now I had 7 days before expiration (I have closed today for an hour ago), and the result is the same as before. That is why I don't understand it, and I have seen webinars. And now I'm trying to understand it how it is working in praxis
fxtime fxtime
lL..fwiw there is a brilliant Options made easy book written by George Cohen....the general info within the book is no different from any other except at the very final section/chapter where he outlines each and every trade set up available via options plus what your expected returns should be and why along with what the market needs to do before you have a profit and finally it shows the worst case scenario for any trade...all presented in an easy to use table format.
Time decay is an area that really needs to be grasped imho and you can easilly earn from it month on month!!
Georgio Stoev Georgio Stoev
thx fxtime! and even easier, long time classic "Options as as strategic investment" L. McMillan


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