Managing gold volatility with option spreads

Bearish Strategy

Trade: Buying the /GC Aug 1240-1220 Put Spread for $5.00
Risk: $500 per 1 lot
Reward: $1,500 per 1 lot
Breakeven: $1,235.00

This trade sets up for a 3-to-1 return on invested capital if gold futures trade below the downside target on expiration.

Click to enlarge.

Bullish Strategy

Trade: Buying the /GC Aug. 1350-1370 Call Spread for $4.90
Risk: $490 per 1 lot
Reward: $1,510 per 1 lot
Breakeven: $1,354.90

This trade also sets up for a better than 3-to-1 return on invested capital if gold futures trade above the August upside target on expiration.

With increased volatility in gold markets after the Fed announcement, it is especially important for traders to look for setups with good reward-to-risk ratios.

Click to enlarge.

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About the Author
James Ramelli

James Ramelli is the Moderator of the Live Futures Options Trading Room at KeeneOnTheMarket.com where he actively trades futures and options on futures while educating members on strategies, setups and risk management. He has a degree in Finance with a focus in Derivatives Trading and Financial Engineering from The University of Illinois and has been trading for five years. James appears regularly on Bloomberg T.V. and BNN and writes a weekly column for Futures Magazine.

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