How We Trade Metals (and Two New Trade Ideas)
How We Trade Metals (and Two New Trade Ideas)
Take advantage of the rich call skew in gold by holding the underlying and selling a call against it
Buying and holding gold isn't as sexy as investing in equities. It doesn’t pay dividends, and it usually doesn’t move much. But you can take advantage of the rich call skew in gold by holding the underlying and selling a call against it.
This can turn a passive asset into something that generates actual return.
Here’s how the math works:
Buy 100 shares of GLD at $308/share → total cost = $30,800
Sell a 35-delta call for $5.25
→ You collect $525 in premium
That lowers your effective cost basis from $308 to $302.75 — a 1.7% yield over ~45 days (and twice that if you’re doing it in a margin account). If GLD stays flat, you keep the premium. If it moves modestly higher, you profit. If it rallies hard, you get called away with gains.
In a sleepy asset like gold, this is how you create income and improve ROI.
Looking at gold call skew
Stocks crash down (i.e., high put skew). Gold and metals tend to crash up (i.e., high call skew).
For an example of the call skew in the metals, take a look at the following:
Futures Sizes
Check this out. Futures and ETF equivalents.
Crypto Ranges
tastytrade has 20 tokens available to trade on the platform:
Two Trade Ideas
GDX ($52.44) Call Ratio Spread (JUL) $0.22 Credit
VanEck Gold Miners ETF (GDX) is a gold miner ETF with exposure to some of the largest gold mining stocks in the world, including AEM, NEM, WPM, and ABX. It generally moves with the price of gold, and is just off 52-week highs ($53.83). If you are bullish gold and want to play into the skew while removing downside risk, a call ratio spread 1x/2x the 53/56 trades at a small $0.22 credit with an added potential profit of $300 up to new highs at $56 and no downside risk.
GLD ($307.25) Call Broken Wing Butterfly (JUL) $0.29 Credit
Looking for a more pure play on gold? Playing into a gold (GLD) call skew, call broken wing butterflies provide no risk to the downside, have a defined risk and have high upside profit potential if gold continues to grind higher. Long 1x the 315, short 1x of the 320 and 325, and long 1x the 340 uses around $1,000 in BP with a potential profit of up to $500 if GLD rallies to new highs between $320-$325.
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Michael Rechenthin, Ph.D., (aka “Dr. Data”), managing director of research and development, has 25 years of trading and markets experience. He’s known best for his weekly Cherry Picks newsletter. On Thursdays, he appears on Trades from the Research Team LIVE.
Nick Battista, tastylive director of market intelligence, has a decade of trading experience. He appears Monday-Friday on Options Trading Concepts Live. On Wednesdays, he co-hosts Johnny Trades. @tradernickybat
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