[Options Premium] Time to Rock

Sean McLaughlin
March 5, 2021

ASC Analyst Steve Strazza recently published a bullish piece on the Gold Miners $GDX ETF. I liked the idea so much that I'm going to jump into an options trade that will capture the meat from the move if it plays out as expected.

Here's Steve:

We think it’s time to buy Gold Miners again, specifically the VanEck Vectors Gold Miners ETF $GDX. Owning Gold or Gold Miners has been nothing more but opportunity cost. However, there is mounting evidence that suggests now might be the time to jump back into this trade.

Notice how momentum remains in a bullish regime as RSI hasn’t hit oversold on both weekly (above) and daily (below) timeframes.

On the daily chart price is testing a confluence of potential support as the lower boundary of a downward trend channel intersects with the breakout level at those key former highs.

This gives us a very favorable and well-defined risk/reward opportunity.

I'm convinced. And I like that we have nearby support that will clearly tell us we're wrong quickly.

Here's the Play:

I like a $GDX September 32/40 Bull Call Spread for a $2.15 debit. This means we'll be long the 32 calls and short an equal amount of 40 calls. The price we pay up front is the most we can lose.

I'll consider this trade busted if $GDX closes $30.00 at any time during our hold. If that happens, I'll close it at the open of the next trading day. Clearly, the bottom of this 6-month downtrend is not complete.

On the upside, I'll work an order to close this spread for a profit at $5.10. This would represent a more than doubling of my invested capital, and a capture of a little more than 50% of the maximum profit potential in this trade, without having to hold it all the way until September expiration.

If you have any questions on this trade, please send them here.

~ @chicagosean

 

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