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Long risk reversal strategy paid off in 2011

The declining trend line is one of the
simplest tools used by technical analysts and is well suited to a reversal trading strategy when a
market appears to be bottoming, as was the case in gold in recent years. In early 2011, as gold
futures pushed above a declining trend line around $1,340 an ounce, the market displayed “strong
evidence” of the start of a bull trend, Trading Central said in its Technical Patterns &
Options Strategies update. At that time, a “long risk reversal” strategy would have paid off, with
the purchase of a call option at a $1,360 strike along with the sale of a put at a strike around
the low of $1,310. COMEX gold futures went on to touch an all-time high above $1,920 in September.
More recently, gold futures during July posted an upside breakout from a declining trend line, as
did silver futures. For more on applying options in profitable trading, see “25 Proven Strategies
for Trading Options on CME Group Futures”Read Full Report