An options trading idea from Stutland Volatility Group.

Market Vectors Gold Miners ETF Trust (NYSE: GDX)

This exchange-traded fund covers the Gold Miners Index. A few of the top holding companies are Barrick Gold (NYSE: ABX), Goldcorp (NYSE: GG), Newmont Mining (NYSE: NEM), AngloGold Ashanti Ltd. (NYSE: AU) and Kinross Gold (NYSE: KGC).

Most of these stocks are down for the year but gold on May 3 traded for over $1550, a recent high. Issues for these firms include credit concerns out of Europe, credit costs and inflation.

GDX closed at $56.61 down nearly 5 cents for the day. However, intraday trading saw a low of $55.82 and a high of $57.68, a move of $1.86, or about 3% of the underlying. If an investor was considering adding exposure to gold through mining stocks to their portfolio they may want to consider GDX Weekly options.

Buy GDX Weekly Jun 56 Calls/ GDX Weekly Jun 56 Puts

If an investor expects to see significant intraday movement in the underlying, they may want to consider buying a GDX Weekly Straddle to take advantage of this. A straddle buyer believes the underlying will be volatile but isn’t sure of the direction.

For example, an investor could buy the GDX Weekly June 56 Straddle for $1.76. Yesterday, the 56 Calls closed at $1.08 while the 56 Puts closed at 0.68. The $1.76 price is reasonable considering GDX moved 1.87 intraday.

This Weekly option expires on Friday, June 10 so traders must be able to move quickly in and out of the market. Check the option chains for current prices.

By owning the straddle, the investor has two profit opportunities. The straddle makes money if GDX moves above $57.76 by next Friday, (56 + $1.76 = $57.76). The straddle also makes money if GDX falls to $54.24 and lower.

The risk of the strategy is that GDX doesn’t move beyond either breakeven point and the $1.76 paid for the straddle erodes lower or is lost entirely.

Investors should be aware that unlike regular listed options that expire on the third Friday of the month, weekly options have a much shorter expiration date.

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.