Bullish on USD?

If you believe the recent run in US Dollars is sustainable and don't feel like you've completely missed the move, consider the following strategy to profit from it: sell credit spreads... in gold.

Dollars move inverse to gold. And while there's certainly no perfect correlation there, the basic relationship is fundamentally sound. The next two graphs illustrate this:

US Dollars (DXY)

GOLD (GLD)

There has clearly been a breakdown in the gold rush. The question is whether it'll stay broke.

I think a low risk way to profit from this is to sell the 85/89 Sep GLD Call Spread (aka Bear Call Spread) for a $600 credit - with a stop above 85.65. Here's what the trade calc looks like:


Theoretically you're risking $3,400 to make $600 but in actuality, your intelligent STOP would limit your risk to a fraction of that.

So why not just sell Bull Put Spreads (credit spread: bullish) or buy Bull Call Spreads (debit spread: bullish) on DXY? For one, options don't trade on DXY. Also, the GLD charts looks a lot nicer in terms of support/resistance.


Have a great Labor Day weekend.

OptionSpot

GLD

Put this on the watchlist. As you know, options are finally available on GLD and surprisingly, even though they're brand new, the spreads are relatively tight (about $0.10). And they trade at every point.

Check out the Open Interest around the Jul 90 Calls.

And of course the chart itself.

These continuation patterns, as you can see, generally resolve themselves in the direction of the overall existing trend but to reduce risk it's necessary to establish some sensible entry/exit points. i.e. a breakout above/below the upper/lower trendline and then a stop on the opposite side of said trendline. GLD will be something to keep your eye on ahead of this weeks Fed meeting and with regards to further inflation concerns.

I thought this was worth looking at. Even though the points where GLD touch the lower trendline are awfully far apart, yielding them less predictive, I wanted to share this one-year chart since so many people have only been focusing on the extreme short-term plummet from 1000+ to 920.

SPY still seems poised for a pullback as it remains a little overbought - as do all major indexes. Plus, the S&P alone is up something like 6% over last several trading sessions so some pullback would be expected.

The market in general; however, has been doing an amazing job of brushing off extremely negative news - which is bullish at least for the short-term. Once we get that pullback, I would strongly consider rolling-up or exiting any short positions that are in reach of the underlying. The market has shifted and is presenting more upside risk in the short-term.

To further that thought, I think it is okay, again hopefully on a pullback, to sell some April Put Credit Spreads below 125 (sell at 130 if you're feeling lucky). Remember to use a trade calculator to see which index gives you the best premium. You may find that for the same delta, same standard deviation, same dollars risked, etc. that a much larger premium can be had for selling IWM over SPY, or DIA, for example. Finally, the last few weeks have forced us to set common sense and rationale aside - so just try to go with the market - even when you know you're right.