Options and Gold (GLD)

Options are an extremely powerful tool when used correctly. They allow you to take calculated risks, hedge your portfolio, generate income, and add flexibility to your investment approach. For an asset manager, they’re one of the most valuable instruments in the toolkit.

One idea that has always intrigued me is using options to turn non–dividend-paying assets—such as certain stocks, ETFs, or commodities—into income-generating positions. Gold, for example, is a classic non–dividend-paying asset. It sits in a vault, looks attractive, is used in jewelry, and serves as a long-term store of value—but it doesn’t pay you anything. By using options, specifically covered calls, we can transform gold (via GLD) into an asset that effectively generates a dividend-like stream for investors.

My pitch to investors is simple: through a disciplined covered-call strategy on GLD, we can offset the ETF’s 0.40% expense ratio, cover our management fee, and still deliver income. This is active management using out-of-the-money (OTM) covered calls to create a yield. The target is an annual income stream in the 3–4% range—similar to what you’d expect from a dividend-focused ETF like SCHD.

There are several additional advantages to owning gold this way:
• No storage hassles
• No security concerns
• No transportation issues
• No risk of scams or counterfeit metals
• No miscellaneous costs or complications associated with physical gold

Buying gold through a regulated securities market—while generating income through options—simply makes the process easier, safer, and more efficient for investors.