The Money Tree

Safely Generating Income in Retirement

New Trade – GDX

Posted by mounddweller on January 10, 2013

Fellow Traders,

Today I executed a new trade in GDX.  GDX is the Market Vectors Gold Miners ETF.  This ETF holds positions in large-cap gold mining companies.  Below is a list of their current top 10 holdings (courtesy of Yahoo Finance).

BLOG - GDX Top 10 Holdings

While I have previously traded individual gold mining company stocks, this is the first time I have traded GDX.  Here’s what brought GDX to my attention.  I have been reading various stories about the recent weakness in the price of gold.  I also have read several articles about gold mining stocks being at record lows relative to the price of gold.  This got me to thinking that now would be a fairly good time, relative to down-side risk, to sell puts on gold mining companies.  I checked the charts for several gold mining companies and didn’t see any that jumped out at me.  However, I then decided to check GDX and its small cap sister ETF, GDXJ.

The GDX chart appeared to best fit what I was looking for.    GDX over the past 3 years has not traded below $40 and has traded as high as $65.  In the past few days it has traded around $45.  Thus, it is within 10-12% of its multi-year lows.  That limits down side risk.  Below is the one year chart for GDX (again courtesy of Yahoo Finance), showing the $40 lows.

BLOG - GDX 1 Year Chart

In this next chart which shows the past 3 months I have included the slow and fast stochastics.  Both indicate the ETF is extremely oversold.   What you can’t tell in the chart is that today the %K moved back up over %D indicating the sell-off might be over and a rally might be right around the corner.

BLOG - GDX 3 Month Chart

So, anticipating a rally might be about to occur I executed the following trade:  STO 3 GDX JAN25 $44 puts at $0.42.  GDX was trading at $45.20 when I sold my puts.  This gives me about 2.6% downside protection and a 0.95% ROIC with only 10 days to expiration.

Note, my expiration date on these puts is only two weeks out.  When looking at available expiration dates for selling GDX puts I stumbled across something new.  Previously I had never seen weekly options available with more than 8 days to expiration.  GDX had weekly options available for the next several weeks.  In fact they had weekly option expiration dates all the way out into February!  This is a put sellers dream!  Not only are GDX puts available in $1 strikes they are also available with multiple weekly expiration dates.  Talk about flexibility in both the set-up and management of your trade.  This is nirvana!

Has anyone found any other stocks or ETFs with this many available expiration dates?  If so, submit a commit and let me and my other readers know.



4 Responses to “New Trade – GDX”

  1. Marcus said

    Thanks for sharing your trading practices on the blog.
    Did you end up rolling the position or exit the trade? Why did you choose a shorter expiry?
    I’ve found the shorter dated contracts, <1month, are hard to price (?)… Harder to hold and "management" needs to be stepped up / sudden moves can have a drastic effect. 1-2 months can allow you to take advantage of time decay with further OTM contracts and more "cushion".

  2. Marcus said

    I just saw your “open positions” page… Oops 🙂
    I see you rolled it to Feb16… ITM…
    I know gold (and miners) have some interesting movements at times… Do you watch gold volatility vxgld?

    • mounddweller said


      I’ve been slow to update my blog. In addition to rolling the GDX puts at the $44 strike I also sold an equal amount of FEB puts at the $41 strike. Barring a disaster this week those should expire OTM. However, it looks like I will need to roll the $44 puts out another month.

      You also asked about VXGLD, no quite honestly I didn’t even know that existed.


      • Marcus said

        My mistake- I meant GVZ (cboe gold volatility index); there’s also VXSLV for silver. These aren’t tradable instruments but might help with pricing metal related options?
        Thanks again.

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