New Trade Alert for (GDX)
Gold Miners Exchange Traded Fund June $20.00 Call @$4.75 or less
Risk Rating: 2.0 (1 = lowest 5 = highest)
Above Break Even Probability: 46%
Max Loss Probability: 20%
Summer stock surge saw the major markets march to new highs over and over. The S&P 500 broad barometer has BOOMED marking new records more than 35 times in 2017.
This remarkable rally run has seen the Tech sector gain more than 20% YTD with fear of heights a mainstream malady with some are constantly on the look out for a top and downturn.
BullsEyeOption has done well with an optimistic outlook for equities over these past years of positive stock performance.
The repeated value buy ins as seen recently in the Russell 2000 IWM small cap ETF options illustrate the market methodology that works…until it doesn’t.
Go Go Gold has my attention after a big drop from $1350 52 week highs and a dive under the $1300 an ounce price pivot. The January $1200 to August $1300 range targets $1400 if safety is sought in our uncertain world.
This pullback is perfect to position with a protective play.
GDX the Gold Miners ETF was a performer when stocks were being sold. Having the safety of Gold never gets old.
GDX has traded mostly between $20 and $26 in the last year of trade. This price pullback puts the reward to risk in favor of the bulls at the $23 halfway mark of the last 52 weeks.
Lean on the $23.00 midpoint on a weekly basis as a support point to watch.
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 June option has nine 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 $23.50, for example, an In-The-Money $20.00 strike option currently has $3.50 in real or intrinsic value. The remainder of any premium is the time value of the option.
Trade Setup: I recommend the GDX June $20.00 Call at $4.50 or less. A loss of half of the option premium would 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 79% meaning that for every $1 move in GDX the option moves nearly 80 cents.
The June option has nine 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.
The maximum loss is limited to the $450 or less paid per option contract with the upside potential, on the other hand, unlimited. A stop loss is placed at $200 for cash management purposes.
The GDX option trade break even is $24.50 or less at expiration ($20.00 strike plus $4.50 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 $475 per contact (Stop loss at $200).