On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. The plan was to buy these contracts back at some stage during the following week at a lower price.

The trade was basically a two pronged attack on the value of the puts we shorted. Firstly there was the most obvious aspect which was gold prices increasing. As gold prices increased, the value of the GLD put would go down, so since we thought gold prices would increase, it made sense to short the put. Secondly since the put was out of the money (its strike price was below the spot price), it would become worthless come expiration day, unless gold fell dramatically (it would’ve taken a good $150 drop to bring the puts into the money). Therefore the contract was losing value every day as its time premium decayed and the probability of it expiring worthless increased.

Both factors hit the price as planned. Gold prices made strong gains and on Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days. We could have held out for a better price, or even waited until the puts were completely worthless, however our trading experience and instincts tell us that when you are looking at a return that good in such as short space of time – take it. Especially since the market was a tad too volatile to use stop orders to lock in profits, which is how we usually operate.

We must point out that the naked short selling of options is only recommended for experienced options traders, due the high level of risk. For those more risk adverse investors and traders, OPTIONTRADER also just closed a simply trade on GLD calls, where we made 10% in 108 days, equivalent to over 33% per year. Here we used stop orders to limit our risks and lock in profits, so although we were stopped out earlier than we anticipated, it was still a decent return relative to risk taken, despite being the smallest profit margin OPTIONTRADER has ever banked.

With these new trades factored into our record, we have now closed 16 trades with an average gain of 42.73% per trade, and an average holding period for each trade of just under 38 days.

Since the beginning of 2010 the number of subscribers to OPTIONTRADER has trebled, and over 90% of those who have subscribed remain subscribers today.

So if you are interested in options and our premium options trading service, OPTIONTRADER, then please click below to sign up or visit SK Options Trading to find out more.

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