All That Glitters is GLD

The Feds are on the move, raising interest rates twice in 3 months (after an 8-year dry spell).

The so-called “Trump Rally” is stagnant, nearing on the side of faltering.

Basically, the economy is moving. There’s underlying tension, a certain uncertainty that cannot be named.

So what’s a trader to do?

Turn to gold.

Gold is known as a safety asset, as it is negatively correlated to the movement of the market and the movement of the dollar. So as the Feds raise interest rates (and the dollar weakens) and the market (maybe? finally?) experiences a down move, gold should increase in value.

There’s a lot to be uncertain about.

The developments of the Trump presidency, and the inability to pass a healthcare bill is leaving many citizens concerned about the future of the nation.

Also, the many promises made, in the face of the failure of the Trumpcare Act, seem a bit less promising. Perhaps lower corporate tax rates, amongst other things, are a bit farther in the future than investors previously thought.

If the economy continues to lose steam, gold presents an incredible opportunity for traders.

If we want to get really technical, we can trade volatility in gold. Volatility is also inversely related to the market.

So, up moves in gold are coupled with up moves in volatility. Market goes down, vol goes up, and so does gold!

Gold trades at an inverse skew, which means that the calls trades for a higher price than an equal delta put (and is also farther away).

So what does this all mean?

When GLD increases in vol, that presents the perfect opportunity to place a short premium trade.  However, skew should be taken into account depending on the type of trade (strangle, iron condor, etc.)

Disclaimer: These views are not investment advice, and should not be interpreted as such. These views are my own, and do not represent my employer. Trading has risk. Big risk. Make sure that you can balance your risk/reward, and trade small, and trade often.

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