Yesterday the price of gold rose after President Donald trump is warning Russia from potential missile strike in Syria. Investors also nabasa gold, driving VanEck vectors gold miners etf (NYSEARCA:GDX) is higher by as much as 3.5% in early morning trading.
Implied volatility is increasing along with precious metals showing a sharp rise in demand for options on GDX and the spdr Gold shares (NYSEARCA:GLD). Whether a knee-jerk jump legs remains to be seen, but it is necessary to re-evaluate the space to see what deals we can build on the profit from any extra “fear spikes” in precious metals.
Gold bugs was in desperate need of a positive catalyst for many years, particularly in gold stocks. At 23$, GDX sits at the same place it was in may 2013. Five years of travel by a circuitous route to nowhere. And it’s not like the shareholders received dividends at the same time. GDX has a paltry dividend yield of 0.8%.
Last year the carousel had seen of the Foundation stuck in the narrow window between 21 $and $25.50. Although there have been numerous attempts, nothing was able to shake GDX out of its stupor. Today jump, and reliable-it’s just a return of the price to the mid range, so we are still far from a breakthrough.
However, the continued strength of gold could push GDX to the top of its range around $25 in the coming weeks. Here’s a trading idea Bank for this outcome.
Risk reversals GDX
If you’re comfortable, all bets GDX remains above 22 $and I want to bring the kicker up if it ramps higher, we consider this risk reversal trade. To sell Jun 22 $to put in 60 cents and buy two June 25 $calls for 35 cents apiece. The whole transaction may be entered at a net debit of 10 cents.
In fact, we sell a naked put and use the received premium to buy a pair of outside-money calls. The main risk in the position is a short path, so close it if GDX has broken major support at $20.80.
At the time of this writing, Tyler Craig held a bullish options in GLD. Want more education on how to trade? Check out my trading blog, tales from the technician.