Monday, April 18, 2011

Cost Effective Gold Buys.

Barron's has an article that details how to use the GLD ETF, puts and calls as a cost effective way to buy gold.

It all hinges on the effect of the Federal Reserve's QE2 ending in June. Basically, anyone buying gas, food or other non-durables isn't buying the Fed's stance that inflation is negligible and is seeing an big increase in inflation. Just how this is going to play out when the Fed ends it's latest round of Quantitative Easing is debatable.

Jim Strugger, a derivatives strategist with MKM Partners, advises using a relatively simple trade benefit from any GLD advances that may be triggered by the end of QE2:

"When GLD was trading at $142.05, Strugger told clients to buy June $150 calls on GLD, and to sell the June $135 put to position for the exchange-traded gold fund to trade above $150 by June. The strategy, known as a "risk reversal," lowers the price of a bullish position by selling a bearish put."

Read more here.

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