It is no surprise to anyone following the financial markets in the past few years that the gold miners have been one of the worst places to invest (aside from coal companies). The Market Vectors Gold Miners ETF has fallen 69% from the September 2011 highs above $65 and 28% from the 2014 highs. A stronger U.S. dollar and an end to quantitative easing have put downward pressure on commodities like gold.

However, less than stellar economic data recently has pushed back the likelihood of the long awaited interest rate hike by the Federal Reserve.  What was thought to be a consensus 25 basis point hike by June is now being pushed back to late this year or even into 2016. This is a bullish sign for gold/gold miners, and the chart below confirms it.

warren.4.16.15.png

Technical Analysis

The two-year, weekly chart of the GDX shows the ETF is starting to breakout above the resistance level that has been in place all of 2015 (higher lows from November set this up). Look for additional upside to the $22-$23 area in the coming months. Placing a stop loss under $19 gives you a risk/reward ratio of 3:1.

Unusual Options Activity

On April 15th, 10,000 May 1 weekly $20 calls were bought for $0.42-$0.46. This is by far the largest trade in the May 1 weekly options expiration. He/she is betting on a move above $20.42-$20.46 in a little over two weeks’ time.

The Trade: Market Vectors Gold Miners ETF

  • Buy the June $20/$23 bull call spread for a $1.00 debit or better
  • (Buy the June $20 call and sell the June $23 call, all in one trade)
  • Stop loss- None
  • 1st upside target- $2.00
  • 2nd upside target- $2.90

Additional notes: The GDX’s top five components are Goldcorp, Barrick Gold, Newmont Mining, Newcrest Mining, and Agnico Eagle Mines (nearly 30% of the ETF). Also, by buying the June call spread it gives you two months to play out for a potential triple instead of two weeks like the large call buyer is betting on.

#####

To read Mitchell’s “Unusual Options Activity Report Featuring Put Selling In JPMorgan Chase” at OptionsRiskManagement.com, please click here.