New Trade Alert for (GDX)
Gold Miners Exchange Traded Fund January $20.00 Call @$4.00 or less
Risk Rating: 2.5 (1 = lowest 5 = highest)
Above Break Even Probability: 46%
Max Loss Probability: 23%
Gold has gone nowhere waiting for a catalyst to pop above this $1300 to $1370 sideways action.
GDX the Gold Miners ETF has seen a series of lower highs and higher lows setting up for a big move.
GDX has traded mostly between $20 and $25 in the last year plus of trade. This price pullback puts the reward to risk in favor of the bulls after breakout above the $22.50 halfway mark.
The push above $22.50 range midpoint pivot is positive.
The measured move target at $30 would produce a 100% gain using the right limited risk option. This proposed play also has lower investment cost and less dollar risk than buying the GDX ETF shares outright.
SIMPLE STOCK SUBSTITUTION STRATEGY
A stock substitution strategy using options ties up less capital and has absolutely limited risk to the premium paid.
An option instead of buying the shares also has greater staying power for long term trend development.
The January option has eight plus months for Bullish development.
An In-The-Money option gives you the right to long the shares from a lower strike price and costs much less than the stock itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
A GDX long call option can provide the staying power in a potential bullish trend extension. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
With GDX trading at $23.00, for example, an In-The-Money $20.00 strike option currently has $3.00 in real or intrinsic value. The remainder of any premium is the time value of the option.
Trade Setup: I recommend the GDX January $20.00 Call at $4.00 or less. A loss of half of the option premium could trigger a position exit.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.
The option also behaves much like the underlying stock with much less money tied up in the investment. The Delta on the $20.00 strike call is 78% meaning that for every $1 move in GDX the option moves nearly 80 cents.
The January option has more than eight months for bullish development. This option is like being long for the stock from $20.00 with completely limited risk. GDX was last down at the $20.00 discounted level in December 2016.
The maximum loss is limited to the $400 or less paid per option contract with the upside potential, on the other hand, unlimited. A stop loss could be placed at $200 for cash management purposes.
The GDX option trade break even is $24.00 or less at expiration ($20.00 strike plus $4.00 or less option premium). That stands just $1 above the current GDX price.
A GDX run to $30 more than doubles the option investment with maximum risk of $40 per contact.