The trades in yellow metal have set a new bearish level on Fed's rate decision on the back of mixed bag of US economic reports.

The recent upbeat US economic data coupled with increased bets on Dec Fed rate hike gave a double blow to the yellow metal, knocking-off the bullion to the lowest levels since 2010.

Precious metal far month contracts for December delivery on the Comex division of the NYME dropped $1,062.30 an ounce during European early trading session. Yesterday Gold CFDs closed lower at 1069.94 for 6thconsecutive trading days.

Technically, the precious metal has surpassed all major support levels where supply was seen more than demand and for now lingering resistance at around $1,071.20 levels, if it does not mange to break above these levels, then 1060 areas cannot be disregarded.

The strategy is for those risky traders who have this commodity exposure at present and are concerned about further correction. The hedger takes following positions to constructs this strategy:

Write an OTM call option + hold an ITM put option (near month Call & mid month put). Writing OTM calls may likely to fetch certain returns since any abrupt slumps in near future may be taken care by this instrument.

This helps as a means to hedge a long position in the underlying outrights by holding longs on protective put.

Thereby, any declines in this commodity would be taken care by ITM put options since the holder of the put option will have right to sell at predetermined strike price at expiry in case of American style options.

The options will have the similar deltas, in commodities trading it is used for hedging which consists of selling a call and buying a put option.

This strategy protects against unfavorable, downward price movements but limits profits that can be made from favorable upward price movements.