Strategies to generate income with Safe Haven Gold ETF – GLD
In times of economic uncertainty and market volatility, investors often turn to safe-haven assets such as gold to preserve wealth and generate income.
Spdr Gold Shares ETF (GLD) has increased by 12.73% in the past 6 months.
GLD aims to match the price performance of gold bullion. Unfortunately for income investors, the GLD ETF does not pay dividends.
Thankfully, those of us who are sophisticated investors can earn income from holding GLD through the use of options. This strategy is known as a covered call and involves selling a call option against a stock position.
Take a look at GLD's Barchart Covered Call Screener.
GLD covered call example
Let's evaluate our first GLD-covered call example. Buying 100 shares of GLD will cost you $20,218. A $220 strike call option for September 20th was trading for about $3.35 yesterday, creating a premium of $335 per contract for covered call sellers.
Selling a call option yields a return of 1.7% over 184 days, which translates to an annualized rate of approximately 3.34%. This assumes the ETF will stay exactly where it is. What happens if the ETF exceeds the strike price of $220?
If GLD closes above $220 on expiration, the stock will be bought back at $220, leaving the trader with a total profit of $2,117 (stock profit plus the $335 option premium received).
This equates to a return of 10.6%, or 21.2% on an annualized basis.
This particular covered call allows for significant capital appreciation. What if investors were more income focused? They would have to sell calls much closer to the stock price (look for lower values in the Moneyness column).
Instead of the September $220 call, let's look at the April $202.50 call (last row).
Selling a $202.50 call option for $3.05 would earn you 1.5% over 30 days, which equates to an annualized return of approximately 18.6%.
If GLD closes above $202.50 on expiration, the stock will be repurchased at $202.50, leaving the trader with a total profit of $337 (stock profit plus the $305 option premium received).
This equates to a return of 1.7%, or 21.3% on an annualized basis.
Of course, the risk with this trade is that GLD could fall, wiping out any profits you made by selling the call.
Technical view of bar chart
Barchart Technical Opinion rating for GLD is 100%, which ranks it in the top 1% of all short-term signal directions.
Long-term indicators fully support the continuation of the trend.
The market is approaching overbought territory. Watch out for trend reversals.
Investing in gold can be used as a hedge against inflation and geopolitical risks, but without dividend payments, returns may not be attractive for income investors. Thankfully, you now know how to earn money from your GLD position.
Please note that options are risky and investors can lose 100% of their investment.
This article is for educational purposes only and is not a trading recommendation. Always remember to do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster I had no position (directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. Please see the Barchart Disclosure Policy for more information. here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Summarize this content to 100 words
In times of economic uncertainty and market volatility, investors often turn to safe-haven assets such as gold to preserve wealth and generate income.Spdr Gold Shares ETF (GLD) has increased by 12.73% in the past 6 months.
GLD aims to match the price performance of gold bullion. Unfortunately for income investors, the GLD ETF does not pay dividends.Thankfully, those of us who are sophisticated investors can earn income from holding GLD through the use of options. This strategy is known as a covered call and involves selling a call option against a stock position.Take a look at GLD's Barchart Covered Call Screener.GLD covered call exampleLet's evaluate our first GLD-covered call example. Buying 100 shares of GLD will cost you $20,218. A $220 strike call option for September 20th was trading for about $3.35 yesterday, creating a premium of $335 per contract for covered call sellers.
Selling a call option yields a return of 1.7% over 184 days, which translates to an annualized rate of approximately 3.34%. This assumes the ETF will stay exactly where it is. What happens if the ETF exceeds the strike price of $220?If GLD closes above $220 on expiration, the stock will be bought back at $220, leaving the trader with a total profit of $2,117 (stock profit plus the $335 option premium received).This equates to a return of 10.6%, or 21.2% on an annualized basis.This particular covered call allows for significant capital appreciation. What if investors were more income focused? They would have to sell calls much closer to the stock price (look for lower values in the Moneyness column).Instead of the September $220 call, let's look at the April $202.50 call (last row).
Selling a $202.50 call option for $3.05 would earn you 1.5% over 30 days, which equates to an annualized return of approximately 18.6%. If GLD closes above $202.50 on expiration, the stock will be repurchased at $202.50, leaving the trader with a total profit of $337 (stock profit plus the $305 option premium received).This equates to a return of 1.7%, or 21.3% on an annualized basis.Of course, the risk with this trade is that GLD could fall, wiping out any profits you made by selling the call.Technical view of bar chartBarchart Technical Opinion rating for GLD is 100%, which ranks it in the top 1% of all short-term signal directions.
Long-term indicators fully support the continuation of the trend.The market is approaching overbought territory. Watch out for trend reversals.Investing in gold can be used as a hedge against inflation and geopolitical risks, but without dividend payments, returns may not be attractive for income investors. Thankfully, you now know how to earn money from your GLD position.Please note that options are risky and investors can lose 100% of their investment.
This article is for educational purposes only and is not a trading recommendation. Always remember to do your own due diligence and consult your financial advisor before making any investment decisions.On the date of publication, Gavin McMaster I had no position (directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. Please see the Barchart Disclosure Policy for more information. here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
https://www.nasdaq.com/articles/strategies-for-generating-income-with-safe-haven-gold-etf-gld Strategies to generate income with Safe Haven Gold ETF – GLD