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Trading an Aggressive Bear Call Credit Spread Option Strategy on Gold (GLD)

Updated: Mar 16

Today I am going to share a bearish option trade I made on GLD making an outstanding 71% profit in 8 days. GLD is the SPDR Gold Trust which represents the ETF tracking the gold commodity. In other words, by investing in GLD you can have a position in gold on the US stock market.

I was monitoring this underlying security as it went on an uptrend all the way from $151 to $190 in 6 months reaching a significant resistance level at the $190 price mark. That is a price level at which the underlying security was likely to find a barrier and drop in value. With a deeper chart analysis and after studying several indicators such as the RSI and the slow stochastic I made up my mind and decided that in the short term my outlook on Gold was short.

Entering a Bearish Bear Call Credit Spread on GLD

That said on Wednesday the 10th of May 2023, I went on creating a beautiful short options strategy called Bear Call Spread with entry point at $189. The strategy had a potential return of over 120% with capital invested of $900 and a maximum profit/entry credit of $1100. The video below gives you a visual sneak peek into the trade.

The strategy was created by simultaneously purchasing 4 contracts of the $190 call options expiring on the 16th of June 2023 and selling 4 contracts of the $185 call options expiring on the same 16th of June. The maximum length of the strategy is 37 days as this is the number of days remaining before expiration of the two options legs.

The goal is for GLD to be trading by expiration at least below the $187.75 breakeven point to get some profit or ideally below the sold strike price at $185 to collect the maximum reward. On the other hand, you get a loss if GLD is trading above the breakeven point and can experience the maximum loss if at expiration GLD is trading above the purchased strike price at $190.

Creating an Aggressive Option Trade

This strategy is slightly different from a Bear Call Spread I did trade some time ago on Cisco Corp (CSCO) which offered some upside protection. In this case, with GLD trading at $188.75 at the moment I entered the trade, the breakeven point at $187.75 is set slightly lower than the resistance level. You can see this clearly from the risk graph in the video. In other words, I am starting the position from the losing side of the risk graph making it a much more aggressive trade. This trade does not have any upside protection and what I expect is for the underlying security to drop below the breakeven point in the next 37 days.

You may be wondering why opening a trade without protection. It’s all about risk/reward and there are advantages and disadvantages. From one end, I am taking a higher risk on this trade as I need a bigger movement of the underlying on the downside to become profitable.

In fact, when I start this trade, the Greek of time Theta is negative meaning that I am losing a bit of money every day as the time passes. For Theta to become positive I will need the underlying price to move below the breakeven point (profitable area). On the other end, because of the choice of picking up more aggressive strike prices, the maximum investment in this trade is lower and the profit potential is consequently higher. In other words, on this Bear Call Credit Spread I will need a directional movement of the underlying on the downside to be profitable, while on a more conservative Bear Call Spread like the one on CSCO you may be able to slowly make a profit just for the passage of time, but in this case, you may need to invest more and likely make a lower profit.

Wrapping Up - Closing the Bear Call Credit Spread

In the following days, GLD declined sharply and quickly all the way down to $181.50, below the breakeven point and right in the middle of the strategy profit area. On Thursday the 18th of May, I decided not to take any further risks and close the strategy with an outstanding profit of $620 (71% ROI). This was only 8 days after starting the trade and with still 29 days left on the options traded.

It paid off going aggressive on this strategy. However, each trade is different and before making up your mind about going for a more aggressive or a more conservative trade, try to have a clear understanding and feel of the price action of the underlying and the overall market trend. What plays a key role in the choice of the strategy is your mindset and attitude towards trading as you want to be only in trades that you are comfortably with.

Hope you enjoyed this trade!

I’ll see you in the next release of the options trading diary.

Bear Call Credit Spread Option Strategy




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