Trading the GLD-GDX Spread After The Last Fed Announcement

On the morning of November 2, before the open, we bid $6 for the 4*GLD-9*GDX spread. The spread had closed at about $10 the night before, but we didn’t want to be too aggressive before the Fed announcement later in the day. We felt there might be an opportunity to buy the spread for less than $10 after the announcement. The spread traded close to $10 for most of the day, and we decided to leave the $6 bid in before the announcement.

What happened after the announcement surprised us. Gold sold off, but the price of the spread declined because GDX did not sell off as much as gold. Typically, the spread price will decline with a significant increase in gold, not when gold sells off. At about 2:55 PM, we bought the spread for $5.90. We immediately offered it at $11 and were lifted less than an hour later for more than a $5 gain per spread—not a bad profit for such a short turnaround.

Written by Norm Winer. Follow me on twitter and StockTwits