Brexit text with British and Eu flags illustration

 

“Uncertainty” has always been a taboo for investors. As the tension and anxiety builds up towards 23rd June where millions of British decides if they would favor their country to be in or out from the EU, we can’t help but to expect huge volatility in the stock market.

With the world being more connected, Asian investors too would feel the impact of such massive news, albeit happening on the other side of the globe. So looking from a financial perspective, how can we use options to benefit from this news?

Before we proceed, let’s establish some fundamentals. We should expect currencies like the British Pound and Euro, global stock markets and gold to experience considerable movements. As uncertainty looms, it is only normal for investors to favor gold being regarded as the safe haven.

This article discusses how I am setting up a trade using gold options to benefit from the upcoming news. As discussed in my previous article, the flexibility of options allow me to benefit from movements regardless of which direction it goes. You may read the article HERE. Now, let’s analyze the situation.

GLD Intro

As a stock investor, one may buy gold via gold ETF and GLD is an example of gold ETF (Refer diagram above). It is currently trading at 123.68. Buying a 100 shares of GLD will costs $12,368 which I am obviously not prepared to risk my money into something so uncertain.

Leading to 23rd June, we should expect investors to sell the pound and buy gold in anticipation of Britain exiting the EU. So, gold prices should increase and continue to soar if Britain exits the EU after 23rd June. On the other hand, if Britain remains in the EU, this would see gold prices declining as money moves away from gold into higher risk investments. Either way, gold prices should move strongly.

If you would like to learn more strategies on how to use Options as part of your trading portfolio, I invite you to attend my free workshop where I will share more profitable strategies to help you reach your financial goals faster. Register your seat HERE

Options Table

Let’s look at the trade setup. Referring to the July week 5 options table above, we are looking to buy a call option at strike 123.50 to ride the upward movement of gold. Simultaneously, I am also buying a put option at strike 124 to ride the downward movement of gold. These trades are represented by the 2 red circles in the table above.

Trade Setup

Next, we analyze the trade. Total cost of these 2 options would be $650. GLD needs to move above $130.50 (+5.5%) or below $117 (-5.4%) for me to start making profits.

Comparison Table 3

With this trade, I am risking a maximum of $650. If GLD moves more than 5.5% either way, I will start to make money. While a 15% movement in GLD only gives me 15% profit using stocks, with options, a 15% movement would almost double my investment, with more than 80% returns. This option strategy is very effective when you expect strong movement in the stock/etf but unsure which direction it would turn out.

If you would like to learn more strategies on how to use Options as part of your trading portfolio, I invite you to attend my free workshop where I will share more profitable strategies to help you reach your financial goals faster. Register your seat HERE

Looking forward to see you and for the wonderful dad’s out there, Happy Father’s Day!

 

Jimmy Lim

Options Master Trainer

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