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TJ, let me try to explain this to you from my understanding, if there are any errors in my explanation perhaps Max and Chris can clarify. If something isn't clear, you can ask me. The thesis of the trade is this: You believe GLD is on an overall downward trend, you buy a long put and believes by expiration GLD price should settle below your long put strike price (this is the best case scenario), you collect extrinsic value by shorting GLD puts each week until the expiration of the long put to reach your profit target. There two components to this trade. LONG PUT: You buy an ATM put for x number of weeks into the future, you believe the price will settle somewhere at or below the strike of the long put you purchased by expiration. You set an profit traget (eg. 5% per week for X # of weeks) and calculate how much extrinsic value you need to acquire each week off your shorts to achieve that target. SHORT PUTs: You sell the # of contracts each week to achieve that target you set (the strike you sell at should be the strike that gives you exactly the amount if extrinsic you need, why? because if you sell a strike with more extrinsic you need, the strike is usually further away to the underlying price, so more OTM, in case of a upwards rally on GLD, you will get to keep less intrinsic. Keeping more intrinsic help you offset losses due to the difference in deltas between your long and short position, i explain it further below), when you short the puts 1 of 3 scenarios can occur by the time you need to buy to close and sell to open for the following week: scenario 1: GLD price does not move and is equal to your strike price by week's end: well that's great, you just collect the extrinsic value because theta is negative and vega is positive. since GLD price didn't move, theta has decayed away most of the value and you don't pay more to close because vega probably didn't really move much since the GLD price didn't decrease. scenario 2: GLD price settled above your strike price by week's end: well that's even better, you collect the extrinsic and even a bit more because now when you buy to close, your GLD strike is further OTM, making it even cheaper. scenario 3: GLD price settled below your strike price by week's end: well that sucks, you see a paper loss. it cost more to buy to close because now your short put has intrinsic value in it because it's ITM. but wait maybe you didn't lose money at all? how? well your long put is now further ITM, all the paper loss you see on your short put maybe covered by the gains on your long put! However this is not always the case. Why? a. The deltas on your long and short puts are not the same. Usually gamma on options closer to expiration are much greater than longer dated options. So in the scenario where the price of GLD all of a sudden drops $2 dollars in one day, or even worse, drops 2 dollars on the day you are suppose to close (usually a friday), your short delta is going to be 1. whereas your long put delta maybe less than 1. so in that case, the gains on your longs will not sufficiently cover your paper loss on the short. b. if the price drops on your short, because you have to buy to close, vega maybe pretty high, so you are paying more to close your position. if vega increased alot, it may even offset the negative theta you have been collecting. which means you got hit by a double negative. you gains on your short from time decay got offset by the increasing vega. and your delta on your long is less than the delta on your short, so your intrinsic loss wasn't covered by your long put either. and the above two reasons is why you never roll your long put if it's DITM, because the delta will be close to 1. if both deltas are 1, you have eliminated all your gamma risk, and you can be sure that any paper loss on your short positions will be covered by your DITM long put. All you have to do is sell at your extrinsic every week and make your profit target. this is also why Chris suggested to do a ratio in the beginning. Because when your long put is not yet DITM, you have that difference in delta between your long and short. If you short in a smaller ratio than your long, and if the price drops substantially as in what i described in a. and b. then that ratio will partially offset your delta difference. when your long is sufficiently DITM where both deltas are 1,then you can forget the ratio and do 1:1 long:short. Since you have 2 ways to win on your short vs. 1 way to lose, and if your long put is DITM, you pretty much have no way to lose. In summary, I believe It is an excellent trade if you believe GLD will not have a big rally anytime soon. If you look at the overall economic conditions - Fed is beginning to taper their bond buyback - This will drive up long term interest rates - This will give bonds and other debt instruments more yield - this will lead to a decrease in gold prices because it makes gold, which yields nothing, an less attractive investment option. - so I don't believe there will be a BIG rally in gold prices soon. In general based on overall economic conditions and the thesis of this trade, I believe it will be profitable if executed correctly.