Gld-how to capitalize on war and hedge with junk bonds theory

Hello, I’ve been seeing some interesting in gold from some people after it’s rally due to Russia war concern and would like to provide a guide to gold and a possible way to hedge if your interested in playing gold for the remainder of this conflict tension.

The first thing to understand about gold before you trade is it has a high correlation to the bond market. Gold and bonds are both considered “safe havens” when people are scared of stocks they come here. Treasury bonds collect a yield on them where as gold doesn’t collect anything (it’s just a rock) so in any environment where treasury yields rise gold prices will tend to fall as the doomsday prep crowd rushes to treasury yields instead. (See chart below #1)

Treasury yields move inverse to the price of the bond high priced bonds have low yields and low priced bonds have high yields. Article below if you want to understand better or don’t believe me. (See chart below #2)

Another important thing is gold prices move inversely to the us dollar as well. This is why gold does well during inflation because the more usd that comes into existence the less the value of each individual dollar. (Other currencies as well but inflation seems to an issue in other countries as well)


The next piece of my trade is junk bonds. A junk bond is a bond that isn’t a treasury bond but behaves the same way. Junk bonds follow the price of regular bonds similar to gold because as treasury bond prices fall their yield increases making treasury bonds more attractive and making junk bonds obsolete. (See chart below #3) there are many junk bonds to choose from but I personally like lqd as my choice for junk bonds.

So combining the knowledge above we see that gold prices and bond prices will rise and fall together. Remember yields inverse prices and gold inverses yields.


So what opportunity’s does this knowledge create for us in the current market. First we see increasing interest rates as a reality in march, and second we see escalating tensions in Ukraine over Russia invading.

Interest rate increases are bearish for both bond prices and gold prices. (Again remember as bond prices decrease yields increase and yields increasing is bearish for gold)

The combination of increasing tension in Russia and interest rate hikes creates a rare opportunity where gold prices are rising due to conflict but bond prices are falling due to threat of rate hikes In Mach. I’m other words gold is rising when it should be falling in relation to bond prices.

Tl;dr (I recommend not skipping if you aren’t knowledgeable but whatever)

If your interested in taking a long position in gold but are worried about rate hike hawkishness brining gold down or Russia backing down derailing your position you can hedge by taking a short position in junk bonds, this will create more scenarios then just success or failure.

Scenario 1 ideal scenario russia and Ukraine conflict escalates and the fed comes out more hawkish in this scenario you profit both ways for reasons stated above. (I consider this to be the most likely which is why I’m taking it)

Scenario 2 slightly less ideal russia Ukraine conflict escalates but fed comes out more dovish, I’m this way you profit off gold increases due to dovish fed and Ukraine tension but take a loss on the junk bond short position. Remember what I said earlier about why gold thrives during inflation, if fed somehow comes out dovish then gold will still get a boost from massive inflation fears as fed continuing to do nothing will see inflation get out of control.

Scenario 3 less ideal russia Ukraine conflict finds a peaceful resolution but fed comes out hawkish. In the scenario you loose on gold but are compensated on a gain from the junk bond short position.

Scenario 4 worst case is Russia Ukraine conflict finds a peaceful resolution and fed comes out dovish in which case you would loose out on both ends of the trade. I believe this to be the least likely as inflation is getting out of control and Russia has shown no signs of stopping. Remember what I said earlier about why gold thrives during inflation, if fed somehow comes out dovish then gold will still get a boost from massive inflation fears as fed continuing to do nothing will see inflation get out of control.

The key thing to remember is as long as people think one of these things the longer the position has to gain in value so the day the decision comes out you will still have plenty of time to exit positions.


The first thing is the threat of theta from holding to option contracts. I recommend taking further out calls and or itm calls to minimize theta exposure. Also selling the inverse on either side can see theta working for you not against you but remember the risk of assignment. Also shares for the long leg will have no theta exposure.

When considering inverses it’s not really one for one.

I could be wrong/loose money on this trade. As with all trades the possibility of being wrong and loosing money is there.


1.) treasury yields vs gold price

  1. Yields vs bond prices (tnx tracks yields not prices)

  1. Treasury bonds vs junk bonds (lqd)


Based on my research I consider this to be a strong play and with proper position sizing consider it to fit my personal risk tolerance. The play will play out around a 1 month time frame as march fomc will see the rate hikes and russia is slow to invade still. This play is a bit longer minded there are opportunities to scalp/day trade junk bonds and gold/gold miners but the play as written has a 1-2 month time frame.

Edit 1.) the hedge is more so catered to the threat of increase rate hikes bringing down gold then russia canceling the war.

Edit 2.) I do see gold is down on peace talks I’m not going to rush into the gld calls, will wait to see how the day trends. I am also ready to switch gold thesis to bearish on a dime as it’s near an all time high only fueled by a single event.


Huh, I was talking with someone earlier about the topic and noticed GLD options were up 200%+ today, it was added to my watchlist. Gonna be eyeing entries the next few weeks, would love to get a few swings in. Didn’t know much about other tickers and all the bond stuff though, this write up came along at a really interesting time, thank you for this :+1:

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Nice write up and timely. All the instability you point out creates fud in the markets. Gold is trading at its highest in quite awhile and is easy to play for most folks via GLD and complementary miner stocks. Thanks and good luck trading .

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Taking my position here I think now that the war hype is dying down a bit the sentiment moves on to what is the fed gonna do about inflation. For lqd puts either way the fed comes out won’t look good fed either has to raise interest rates now or risk inflation spiraling out of control both bearish for junk bonds. And gold if fed comes out dovish gold will run up on fears of out of control inflation. If fed comes out more hawkish then expected I may take a loss on gold but that’s why I have junk bonds. Also holding some cash on the sidelines in case price turns against me I can hedge with futures to minimize my loss .

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Thank you for this post. Now that the Fed has come out dovish, at least temporarily, I’m interested to see how gold reacts to inflation concerns. Ukraine invasion is bringing about inflation in fuel and commodities and the Fed seems handcuffed in their ability to be more hawkish as it would really test the strength of the economy overall.

Also, as Kevin I think mentioned on TF, the option prices for GLD seem to move more than the underlying which is pretty nice. Gonna do a bit more research this weekend and maybe try and contribute more to this thread!

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Yeah I caught onto that as well fed seemed way to dovish given the current circumstances.

A huge concern now is corn is pushing up and wheat is pushing up and oil is pushing up these are all going to add to inflation fears as now going to the grocery store will now be more expensive.

Also saw an article about stagflation fears coming out to as Russia pushes commodity prices higher while fed tapers. Gold rallied in 1970 and t bonds sunk as yields pushed up like crazy around 10% I’m now hoping to capitalize on fears of a 1970 repeat.

My play so far is going pretty well gold is pushing hard and while t bonds did get a boost it’s been no where near as much and gold.

I have been busy so I haven’t been able to play it perfectly and definitely left some gains off the table. I also kept repositioning to much when I should’ve just held because I was to worried about the market moving on from Russia Ukraine. But overall I am up quite nicely for this particular play.

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I’ll try to keep better track of my positions in this thread for transparency because of conqs new callout transparency rules.

My current positions are
3 14 apr 22 200 calls
1 og2h22 2025 call (this is a futures contract)
1 oznk2022 125 and 1 126 put (these are future contracts for the 10yr treasury)

On Friday begging of the day I just had 1 gold future call I rolled it to a cheaper strike in the middle of the day and put some money in the T bond put. Then after market close my call was up again so I again rolled it to a cheaper strike and put some money into another t bond put as well as saved some profits for my index funds. Gold is back at an all time high so I’m expecting a pull back some time soon so that’s why I’m adding to my t bond puts so I can take profits on those to average down on gold if it pulls back soon. Interesting note is the t bond put I bought intraday didn’t loose any value up until market close despite gold pushing up a ton.

This is my total profit/loss so far ytd but I started this with around a 1k loss on gld ytd from getting burned on fake rally at the end of January. Also on the gold futures I took a loss on buying puts as well as making a bad entry then panic selling don’t remember the exact amount.

This screenshot below is on a paper trading account where I took the position as written on the dd right away I’m going to pair my p/l with more actively trading vs just buy and forget to see which one preforms better as a personal learning opportunity to see how well I can do with actively repositioning and hedging.


Also for you chart pattern guys a 10 year cup and handle could see a breakout here the fundamentals are perfect for it.

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I really like the opportunity that gold presents here as it isn’t acting in accordance to what it usually does with rates and bond prices. I’ve tried to summarize your thesis in a way too simple table so please feel free to correct if I’m wrong. Sorry, I have to dumb things down in order for me to get my head wrapped around it.

GOLD ↑↑↑
GOLD ↓↓↓

What we’re seeing now is .25 basis point increase in FOMC with successive rate hikes throughout the year. Without this devolving into a SPY analysis, that gives us about a month, maybe a month and a half, where the Fed will minimally raise rates but be handcuffed to raise them further given the delicate nature of the economy and the pretense of war in Europe.

The hedge is cool, but something I haven’t developed yet as a trader, because I’m still taking Conq classes trying to follow a singular trade rather than a multifacted one. Forgive me for not developing this part of the play but I will definitely explore this more when I’m more confident.

We are balls deep in your Scenario #2 if I’m following along? Ukraine/Russia continues to escalate while the Fed cannot be hawkish. This creates inflationary fears but the inability to combat them through rate hikes which is bullish for the prie of gold.

Taking a look at GLD, the option chain has weeklies (yay!) and IV as of Friday was around 30%. If we take an ATM Mar 11 184c, we would really need GLD to get really get over 189 before OPEX or at least 187 by Wednesday. These are optimistic $3 - $5 increases in the underlying. This from plugging it into OptionStrat:

If we give ourselves more time for the trade to develop, as Conq does in his challenge, then Mar 18 184c will probably cost us about $100 more but could potentially push the upside higher.

Looking at the daily-candle chart, 2/24 saw an intra-day high-low in the $9 range (holy shit!) with a big green dildo last Friday so it definitely presents the opportunity intra-day to profit from ATM calls.

Thanks so much for looking into this. Most gold trades often have a lot of complexity to them (exploration, mining, labour issues, etc.) but I think this falls nicely into the Valhalla focus of the Ukraine invasion and how to trade it without muddying the waters too much. I’m going to look for an entry on Monday with a very small starter position (probably only 1 contract hehe).


Yeah that’s what I had theorized would happen.

One thing though I got wrong/didn’t expect is that war would lower feds hawkish stance. In light of that I feel the need to hedge is significantly reduced now as 50 bps was the strong bearish case for gold.

Interesting thing I noticed on the chart is it looked like I was right for the first two days that they would inverse each other, but the on the 22nd they started tracking each other I checked the news on that day and there was a fed meeting where they said 0.25 rate hike so maybe that’s why.

Then I noticed Friday gold rallied while junk bonds dipped, I’ll be watching to see if that trend continues my speculation is that people are started to get worried about hyper inflation because fed isn’t going “hawkish af” inflation isn’t good for bonds either. I’m starting to think bonds are screwed no matter what the fed does.

I want to give a huge shoutout to @TheHouse for teaching me about the move index which measures fear in the bond market like the vix shot up like crazy Friday. And also this string of multi million dollar puts on lqd.

Basically in conclusion I think bonds are screwed no matter what and gold will keep rallying on inflation and Ukraine fears.


I think you’re right about bonds being screwed. Had a little spike up intraday when some mines halted production in Russia.

This was a tough nut to crack this morning but so far it’s looking decent. I’m gonna hold through the CPI numbers because I believe it’s gonna act like a catalyst for gold prices. I think the CPI numbers are gonna be bad (matching, or higher than the projected 7.8%) and inflation fears will turn to inflation FUD. Hoping to capitalize on this release.

Thanks to TheHouse too! Learning so much from you guys.

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Couple of huge far OTM call spreads… today and yesterday.

June 235/250

September 235/255

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So GLD is exhibiting an inverse relationship to SPY. This is the 1-day chart with 1 min candles. I’m not sure how Conq and Kryptek do it but they were able to edit out SPY influence. But GLD does look like it’s on a general uptrend if I eyeball it to take away the peaks and valleys. I would draw it in but I think the chart gets really messy if it does.

Yeah it has been inverting spy lately I think this is due to people pulling from stocks to commodities to protect against inflation. Kicking my self for not taking some spy calls after my gold position went red early morning, and using the profits to average down, it seems like an easy play with hindsight.

CPI tomorrow is the big indicator watching closely on the numbers to see what moves to make. I’m expecting high numbers based on the pictures of gas prices posted on trading floor and from observing prices at the store. The only thing that might go wrong is if the expectation over shoots it and price is higher but not higher then expected we could see a reversal in trend. Market is also watching cpi closely as Asian markets rip 4% over night American futures sit flat to slightly negative.

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here’s something interesting. SPY gapped up and GLD gapped down PM yesterday. then for about 2 hours after open, they seemed to be trading in correlation and it was only when SPY started to become more volatile that it started to divert:

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what i found interesting tracking GLD today was that even with the SPY gap down there wasn’t a proportional gap up at open so it decoupled from that inverse relationship. more importantly, the price of gold stayed pretty flat. still have some time for this one as i hover around my cost-basis. CPI numbers came in as expected and wasn’t enough of a catalyst to cause a downturn in the markets. no real substantial news out of Ukraine and a big boost from AMZN propped up buying.

still, March is looking much worse for inflation so maybe tomorrow’s Fed meeting will allow for an exit with some hawkish statements about inflation. not a guarantee as the White House could counter with gax tax-relief plans or oil prices falling further.

Yeah was hoping for a cpi boost. Gold seems to be magnetic around 2000$ price it tried to push down it got bought up it tried going up it got sold off, not sure whether to hold or cut for a loss the oil sell off caught me by surprise. Fomc is coming up I’ve got some thinking to do about possible outcomes and how that may affect prices, and what plays to make from there.

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One thing I may have for wrong is I saw cpi as more inflation but the market saw cpi as fed is going to more aggressively raise interest rates. Good for bond shorts but bad for gold prices.

Some BTC maxi FUD popped up in my YouTube recommendations, guy doesn’t back up half of what he says and is talking about long term investing in the ETF, not swinging options, but interesting that it was about GLD specifically.

Anyway, GLD has treated me good this week, had a nice day on SLV. One of a few bigger ones to keep me alive through WEAT. Grabbed a 3/18 187c yesterday at close which really was me seeing what I wanted on the chart in hindsight, but oh well, averaged it down today hoping for another swing up before Wednesday as then and especially Thursday theta really starts eating these…I’m confident I’ll be able to at least cut, it broke out of a flag I had at 185 around 1:30 and held support so I’m hoping for that $2 gap Monday that’s followed on previous days, and it’s possible we’ll get some news to get buying going too.


I mean I get what he’s trying to say but I’m not preparing my doomsday bunker for the end of the world I’m just making money off of lines moving up and down on a screen. I don’t really think gold etfs have any real value obviously it’s made up but so is the entire stock market it’s what you call it “fairy dust it isn’t real it’s not on the elemental chart” gold etfs track the price of gold and the price of gold is going up is all I care about. I do think a recession is coming but I doubt it’s going to be the end of the world and the entire country will collapse and there will be mass rioting and looting on the streets and nukes will start flying and Jesus will come down for the second coming and Armageddon will finally be apologizing us like this guy does.