Update: Goldigger (featuring GDX)

by CC September 21, 2016 2:59 pm • Trade Updates

On August 24th we took a look at the goldminer etf GDX. The GDX has had a pretty remarkable 2016, more than doubling from the low teens to over $30 before recently pulling back a bit. During that pullback we looked for a defined risk trade idea for those looking to get involved on the pullback but based on just how much the etf was up in 2016 felt like defining risk to as little as possible was the prudent way to do that. Here was the original trade idea from Aug 24th:

GDX ($27.80) Buy the Sept/Nov 30 call calendar for 1.00
  • Sell 1 Sept 30 call at .33
  • Buy 1 November 30 call for 1.33

The etf is essentially in the same spot as the original post. The sale of the September calls helped with decay, but they have expired now. So how does one manage this trade? With the stock at 27.55 the November calls are worth the original cost of the trade. That allows for a roll of the short call strike to October. Here’s what that would look like:

vs 1 (existing) November 30 call (cost basis 1.00) Sell 1 October 30 call at .50 to open

That reduces overall risk in the position to .50. And still holds a long call in November that captures both the election and the next Fed meeting. Ideally, the etf moves higher towards 30 in the next few weeks but not above and the October call expires worthless (this would make the trade decently profitable in the near term). Then the position is simply a November 30 call with unlimited profit potential that could even be turned into a vertical in November.