GLD tanked further and then hovered around \$90 today. Seeing that \$90 is a major pivot point and is in the middle of a large trading range (Figure 2), I'm placing an options strangle to bet that it's going to move outside of the immediate \$90 region. The breakeven move required is below \$86.85 or above \$94.15. Which is about 3.5%.
Note the Bollinger Bands on the daily chart, Figure 1 right-side, depicting the lower and upper boundary to be \$88.30 and \$95.91. Furthermore, the Bollinger Bandwidth is near the bottom of the channel, which means volatility has been low.
I have set an alert at \$3.00 on the strangle premium. This should signal looking for an exit. However, it's obvious now that I'm horrible at setting stops on a strangle. For this trade, I'm going to treat the long and short side separately. So once a move has started, I'll place stops for the in-play side of the trade.
[caption id="attachment_1540" align="aligncenter" width="500" caption="Gold Shares SPDR"][/caption]
[caption id="attachment_1541" align="aligncenter" width="500" caption="Gold Shares SPDR"][/caption]
: http://traderpau.files.wordpress.com/2009/06/2009-06-23-gld.png : http://traderpau.files.wordpress.com/2009/06/2009-06-23-gld_prop.png