TAKE GOLDEN GAINS
Place order to sell the GDX June $11 Call for $7.00 or better for 110% plus profit in less than three weeks.
The deep in the money option will have intrinsic value of $7.00 plus with GDX above $18 right now
ORIGINAL TRADE ALERT BELOW from January 26th
GOLD DIGGING OUT
New Trade Alert for (GDX)
Gold Miners Exchange Traded Fund June $11.00 Call @$3.50 or less
Risk Rating: 2 (1 = lowest 5 = highest)
Above Break Even Probability: 42%
Max Loss Probability: 23%
Gold itself has moved to two month plus highs as downward price pressure from dollar strength has eased. Fears of additional rate hikes have been largely eliminated as the Fed may be forced to stand steady.
Gold has built a base in the last weeks with $1100 an important midpoint pivot of the $300 bull run base to $1900 record highs.
The GDX Gold Miners ETF has lagged behind in performance with lows just last week. Bullish divergence with no new highs in volatility on the price plunge may suggest sellers have tired.
GDX traded sideways from $12 to $17 in the last six months. The first objective is the channel top at $17 nearly 25% above.
In a larger sense GDX was at $30 in the fall of 2013.
Only close below the $12.40 recent low on the weekly basis would negate this bullish buying premise.
The Options Way: Unlimited Upside Potential with Limited Risk.
A GDX long call option can provide the staying power for a market upturn. 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.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months and strikes. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security.
It is important to buy options that payoff from only a modest price move. There is no need to ONLY make money on the all but infrequent large price explosion.
Any trade has a fifty/fifty chance of success. Buying options ITM options increase that probability.
That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options are more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With GDX trading at $13.75, for example, an In The Money $11.00 strike option currently has $2.75 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right but only after the option has expired premature to the market move.
Trade Setup: I recommend the GDX June $11.00 Call at $3.50 or less.
This option strike gives you the right to buy the shares at $11.00 per share, below decade plus lows, with absolutely limited risk. The 52 week low was at $12.40 January 19th therefore this option can let you buy in at a major discount.
The June option has nearly five months for BULLISH development. An 81 Delta on this strike means the option will behave much like the stock.
The maximum loss is limited to the $350 or less paid per option contract. The upside is unlimited.
The GDX option trade break-even is $14.50 at expiration ($11.00 strike plus $3.50 or less option premium). That is just 75 cents above the current Gold Miners ETF price.
A push above the $14.50 halfway point of the six month sideways range targets $17. At that modest level the option investment would gain 70% to $6.00.
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