Call Options Or Put Options On SPDR Gold Shares (GLD)?

| March 14, 2014 | 0 Comments

goldSPDR Gold Shares (GLD), by far the most popular gold ETF, is up 14% year-to-date.  Gold is back en vogue as investors are putting their money into more conservative investments these days.

Currently, GLD shares are sitting at $132.66.  The ETF is up 16% from the 52-week low of $114.46 and is 15% below the 52-week high of $156.43. 

Is this an opportunity to buy call options on GLD because investors are once again flocking into safe-haven investments like gold?  Or should you buy put options on GLD because US equities are going to be better investments this year?

The bulls make a convincing argument…

Along with Treasury Bonds, gold is the world’s most popular safe-haven investment.  In times of volatility, uncertainty, and inflation, investors will flock to gold in droves.

While inflation isn’t a concern in the US right now, volatility and uncertainty is.  In particular, concerns over Ukraine and China are raising global market volatility.  The situation between Ukraine and Russia is creating geopolitical risk, while China’s potential slowdown is very bad for the global economy.

With the Ukraine situation seeming like it will drag on, and China’s possible slowdown an ongoing ordeal, gold is looking more and more appealing.  As a hedge against uncertainty, gold could get a very big boost in 2014.

But the bears have a compelling case as well… 

Gold is still well off its highs from 2011and 2012, precisely because risk isn’t anywhere near where it has been.  In particular, the US economy is still growing and improving.

Despite what’s going on overseas, the domestic economy is doing better.  With the winter weather nearly behind us, US business is set to shift into a higher gear.  That means US companies could thrive in the coming weeks.

By buying gold, investors could miss out on the continuing stock rally.  There’s a reason US stocks are hitting new highs.  If stock prices keep rising, investors will give up on gold and move back into equities.

So is GLD’s safe-haven allure a reason to go long, or is the resilient US economy a reason to be bearish on gold?

If you think the bulls are right, take a look at buying the GLD May $134 calls for around $3.00.

If you think the bears are right, take a look at buying the GLD May $130 puts for around $2.50.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.