GLD SPY Divergence

I’ve been watching both sides of The Gold Argument lately. Overbought or not – this is the question… It’s hard to say obviously, but in parallel there are high expectations for Friday’s Jackson Hole ‘speech’, gold margin hikes, and some optimism creeping into the market. (Thanks to my post yesterday, surely!) The VIX has pulled back to 38 and this combined will put downward pressure on GLD. At least in the short term I expect to see $GLD hold under 185.

I put on a bear spread  today with the expectation that we might be nearing a top on the GLD ETF.

As long as the SPY trend upward was following the GLD trend upward the underlying buyers of $GLD were still expressing their anxiety. In effect the reason traders were buying gold hadn’t changed, even though the market was heading higher. But when I caught this divergence (on admittedly a short time frame), it was signalling a confidence change.

The trade:

  • Bought September 183 Puts
  • Sold September 178 Puts