Gold was fallen to a 5.5 years low of $1,073.53 on 20th July amid the Fed's speculation of rising interest rates in September for the first time since 2006. But prices have since rebounded approximately 3%. Gold prices have been consistently rising from then to hold near a three-week high as China's surprise move to devalue its currency fanned optimism that the Federal Reserve could delay raising interest rates until the very end of 2015.
So those who wish to continue to stay participated in current bullish trend in bullion markets can hedge yellow metal with At-The-Money 0.5 delta calls.
Or the traders who are risk averse, we continue to recommend deploying either diagonal call spread or zero cost collar whichever is suitable to the portfolio depending on quantum of FX exposure, risk appetite and returns expectations.
Buy 45D (far month) At-The-Money 0.51 delta call and simultaneously short 15D near month (1%) Out-Of-The-Money call with positive theta value. But always have this in mind that the shorting instruments with +ve theta to be analyzed with other option Greeks during selection of such short side options.
If shorting a call in the above strategy at current position is perceived as a risky venture then the zero-cost collar is recommended to participate in the potential bull run on verge of surge in the dollar. This strategy can be executed by buying 1M protective At-The-Money 0.5 delta put option while writing 21D Out-Of-The-Money covered calls with around 30+ Theta value.
