FxWirePro: Speculate with short strangles in bullion market as precious metal moving in range (1135-1070)

Technical Inference:

Bears in bullion market are testing channel line support at 1071 levels on weekly basis but prices are most likely to remain in range (1070-1105 levels), if it manages to hold then the marginal bounces are expected, otherwise it's going to be pure gamble for expecting upswings. Stochastic curves have been powerful in suggesting current bearish trend to prevail as they reached oversold territory but no trace of proper recovery. RSI states positive convergence with price stability but cannot be interpreted as bullish call.

Option Strategy:

Rationale: We don't see any significant fundamentals that can factored in gold prices but the big event from Federal Reserve which is in September, much awaited rate hike hopes has approximately discounted the prices.

We recommend the short strangle option strategy which would derive a certain returns during range bounded patterns but with unlimited risk potential. So buy near month (3%) Out of the money call and short (2%) out of the money put options with the same expiry as we think that the underlying price will not evidence any drastic moves on either side. Short strangles are credit spreads as a net credit is taken (US$690.76) to execute this trade.

Break even will be the lower strike minus the two premiums received the upper point and will be the higher strike plus the two premiums received. Downside risk would be unlimited - should the market fall or rise greatly. [If the investor likes the strategy, but not the downside risk, a long butterfly might be interesting].