Market Vectors Gold Miners ETF (GDX): How to Turn Gold Into Cash

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An inevitable bout of profit taking has finally hit the commodity space. After rallying hard during the first half of October, gold, silver and a host of mining stocks were due for a breather.

Traders should be welcoming the dip, though, as it is creating more than a few opportunities. The Market Vectors Gold Miners ETF (GDX) and its top holdings Goldcorp (GG), Newmont Mining (NEM) and Barrick Gold (ABX) are all deserving of top spots in your watchlist for the coming week.

Admittedly, playing individual gold mining stocks will be a bit tricky as most have earnings announcements looming. Those unwilling to roll the dice into the event would be well served in using the sector fund for trades. GDX offers insulation aplenty against any earnings missteps due to the breadth of its holdings.

GDX ETF chart
Click to Enlarge
Source: OptionsAnalytix

Though gold mining stocks remain a far cry from healthy weekly uptrends, the daily chart for GDX looks promising. Even if the declining 200-day moving average (green line in chart) stymies the current advance, GDX could rally another $2 from here.

That might not sound like a lot, but for a $16 ETF, we’re talking about 12% of potential upside.

Besides, with options we can structure a trade that profits even if gold mining stocks meander sideways for a spell.

Naked GDX Puts for Cash

The lower price tag of GDX makes it a prime candidate for selling puts. The margin requirement is minimal give the potential for a high return on investment.

If you’re willing to bet GDX remains above $14 by December expiration, sell the Dec $14 put for 50 cents or better. The max reward is limited to the initial 50 cent credit and will be captured provided the put expires out of the money.

By selling the put, you obligate yourself to buy 100 shares of GDX at $14 if the put move in-the-money. If that doesn’t sound like an attractive proposition simply buyback the put to close the position if GDX tumbles below the $14 threshold.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/gdx-gold-cash/.

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