In my earlier comment, I recommended buying one December Gold ($1110 strike) call option, and shorting 2 December Gold ($1175 strike) call option at a credit of 50 cents. I had the prices wrong and have made the following changes. Disregard the previous order and now buy one December Gold ($1100 strike) call option and sell 2 December Gold ($1180 strike) call options at a credit of 50 cents. So far, this order is getting filled. This trade is even better. You are taking in a credit of 50 cents, or $50, so if at expiration, December Gold is less than $1100, all the options will expire worthless and you keep the $50. If, on the other hand, December Gold closes above $1100, you make $100 profit for every dollar per ounce prices are above $1100, up and until prices reach $1180. The $1180 price is where the maximum profit potential is at expiration, which is $80 per ounce, or $8000. Your breakeven above that is at $1260 at expiration. So for every dollar Gold is above $1260 at expiration, you lose $100. In reality, I would be looking to take profits if Gold reaches the $1180 area if reached before expiration. This trade is a way to take advantage of a large rally in gold over the next few months in case a major breakout occurs.

Sep. 10, 2009
David Hall