Is this a good idea for options??

[rew]

Quote from lasner:

I've been looking at ways to add income to my commodity account.

I've looked at different spread strategies and they all seem the same.

I looked at writing naked calls also. I think I came up with a pretty good idea. let me know what you think.

The dollar and gold are inversely related...they obviously move in opposite directions.

I want to add minimal amounts of income to my account. So I'm going to write a June 1625 call in gold for $270 and at the same time write a June 90 call in the dollar for $250.

Both can't go up at the same time....as one goes up the other has to come down.

I use a doubling effect in options when the $270 doubles in price I will exit.

What do you guys think about this trade.

Well, in another global market panic people will dump stocks for short term treasuries and gold. This could push up the prices of both gold and the dollar. My guess is that your trade will work but it's not a sure thing.

 

[jwcapital]

Quote from jwcapital:

If you are truly bullish on gold, then go long the ETF or gold futures. Now, to hedge, go long the dollar (short the euro) using the ETF or currency futures. Set it up as a neutral position or set it up so that you are rewarded for a bigger gold move upward than a dollar move downward. According to your rationale, gold's increase will outpace the dollar's decrease. If you are wrong, then you will be hedged and lose less. You can also set this up as an option spread as well. You can use the futures (if they are available to you) or the ETF's.

For example, the GLD is currently trading at 111.54 and the FXE is trading at 144.8301. You believe that gold will rise faster and farther than the dollar will weaken. I suggested a hedge. You could buy 200 sh of GLD and sell 100 sh of FXE. If both gold and the dollar go up, you make money. If gold goes up and the dollar weakens (your premise), you still make money, but not as much as if you were highly leveraged as you previously suggested). The only time you lose money is if gold drops and the dollar weakens--which is the least likely scenario. You gotta have a mental stop loss and you have to have a price target, as with any trade. You can rebalance your ratios as your opinion of the trade changes--just don't forget to take a profit. You can always jump back in. You can do the same thing with options. You can buy 2 ATM/ITM call options for GLD (with at least three months til expiration), and 1 ATM/ITM put option for FXE--with same expiration date as the GLD options. There are other options to achieve this spread. The problem using the options is time decay; you could be right and still not profit. At least with the stock time doesn't matter.