Back at the end of August, I mentioned 2 Volatility Trackers to be watching. We focus so much on the VIX, but we also need to be following OVX and GVZ.
Well based on the GLD price action and the vol outlook given by GVZ, I thought it was a good time to buy some volatility in GLD. That means I didn't care about direction, I just thought the price movement over the next few weeks would be larger than what the market was pricing in.
We're closing out our GLD straddle position today for a total profit of +235 per straddle, or a 45% gain, and we'll keep the LEAP vertical on, which is at an unrealized gain of +20/spread, or a return of 66% on basis.
This is where the beauty of playing options comes in: we knew that technically GLD was coiling up and was poised for a break, but we wanted to bet on vol, not price.
Currently, I feel that volatility is overvalued in GVZ. There is too much demand for the options, and whenever we see spikes like this, it generally markes a top in GLD. So I'll wait patiently for vol to die down again so I can establish a new position.
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