Why Bother with SPDR Gold Share Options?

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Long-term options known as LEAPS (Long-term Equity AnticiPation Securities) can be used to advantage by gold bulls in a number of ways. The simplest application relies upon the inherent leverage of options to yield more bang out of every buck tracking gold.

...Most people seem to think that gold ETFs are risky enough thankyewverymuch. Adding another layer of risk to the gold equation doesn't seem to make much sense. There are options, however, that offer decidedly stock-like exposure together with the leverage of a derivative.

Long-term options known as LEAPS (Long-term Equity AnticiPation Securities) can be used to advantage by gold bulls in a number of ways. The simplest application relies upon the inherent leverage of options to yield more bang out of every buck tracking gold.

You can find a LEAPS call, for example, that conveys to its owner the right, but not the obligation, to purchase 100 shares of the GLD trust at $70 any time through the third week in January 2010. Keep in mind that GLD closed at $91.47 a share Friday. This option gives its owner the right to obtain GLD shares at a $21.47 discount to the market price. Mr. Market rarely gives away advantages so large, so you can expect to pay up the "in the money" amount, plus an extra premium for the 567 days remaining in the option's life. After all, time is opportunity in option land: the opportunity to go even deeper in the money.

At present, the call's offered at $26.60 a share, or $2,660 per contract. If you wanted to buy 100 GLD shares outright, you'd have to pay $9,147. An investment that size could, instead, snag three of the LEAPS calls, allowing you to draw upon the appreciation potential of 300 GLD shares rather than just 100. At least until January 2010.

If GLD's at $100 by the third week of January 2010, you could expect a 9.3% profit, before commission, on your ETF purchase. At that same price level, your LEAPS calls, though, would return 12.8%:

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