The premise here is that Gold Miners have been the hottest sector since the COVID-19 pandemic took hold, outperforming all other sectors by a wide margin, even better than tech. However right now, some of that panic has receded and money is rotating, so gold and miners will need to take a rest.
So, I’m neutral to bullish on the miners right now, that’s why I’m recommending one of two strategies. One is an outright brearish call, a weekly put, the other is a steam release valve in a butterfly. I think that I prefer the butterfly, but if you think things could unravel, the potential of the put is much greater.
Here’s the butterfly, max risk of $36 with the potential of making as much as $110 if price does in fact consolidate around $35.95-$36.10.
The Volume Profile shows GDX to be in no-man’s land, looking to consolidate for either another leg higher or to fall back to support. For now, tensions in the world are still high, but good news keeps seeping in. So I think it will be in a holding pattern for at least a few more days.
The alternative view is that GDX and gold for that matter, tried to break out, but too little, too late, and the bearish candles are an indicator of exhaustion and time for a pullback. Maybe next time. If gold relinquishes it’s stand above 1800, then I expect miners to follow suit, but in an exaggerated way.
I favor the put just a tiny bit over the butterfly, only because the possibility of GDX falling to 32-33 doesn’t seem that improbable. The butterfly looks good because the risk is very small, and a few days of consolidation also seems probable at this time.
Basically a toss up, I guess it depends on your options buying level which you might select. If you have level 3 or 4 then you can choose either. If you have level 2, then the put is your only option.
Timing
Both of these are weekly options that expire at the end of this week. In this relatively volatile market, it’s hard to predict out much further than that.
Volatility
Vol has dropped a bit, favoring the PUT. The butterfly will need to be held near expiration in order to get all the theta decay you seek.
