Everyone keeps saying “gold is going up”.  It seems to make sense as our government is printing money as fast as possible.  However, gold hasn’t had a huge run yet probably because all of the other countries are printing money as well so everybody is deflating their currencies at the same time, lessening the blow to the dollar that you’d expect.  At some point though the printing madness has to stop and we have to let inflation take its course.  At that point gold will rally hard.  However, I don’t know when that’s going to occur, but I think we’re probably 2-3 quarters away from seeing inflation come back in so I figure I’d try a LEAP (Jan 2010) call spread on the GLD.  Buy the 100 strike, asking $10.80, and sell the 110 strike, bidding $8.00, for a net debit of $2.80.  The max profit is $7.20 for a 257% gain if GLD is greater than $110 at expiration.  My exit plan is to get out if the spread goes down 50% (to $1.40) or wait until expiration hoping it expires in the money.  I picked these strikes because I figure the chance of going up $21 (24%) in 1 year was very likely, and I picked a $10 spread because I usually like to pick spreads that are about 5-10% apart.

I like to have a few LEAP spreads around with small amounts of money in them.  These are like CDs for me, except with much higher reward potential.  And with that much time out you can get some nice risk/reward ratios if your long-term thesis is correct with minimal risk.