Gold is a rare, precious and always in demand especially from China and India. I usually like to go long gold on dips, but I don’t see obvious entry points. However, the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) options allow me to structure trades around the miners. But remember: NUGT is a leveraged vehicle that trades on gold miners, so caution is always warranted.
I’ll point out that I just booked profits long the SPDR Gold Trust (ETF) (NYSEARCA:GLD). There could be more upside in my technical breakout, but GLD is facing recently difficult levels.
Fundamentally, I prefer going long GLD than NUGT, but in this ube- bullish equity market, gold miner companies should catch bids. In other words, this 3x ETF should benefit from bullish equity markets and bullish gold prices.
Click to Enlarge Technically, I have to recognize a potential bullish setup for NUGT. It could be triggered around $13.7 per share and could carry it to $16 per share or higher.
How to Trade NUGT Right Now
The Bet: Sell NUGT Apr $8/$7 credit put spread for 20 cents per contract to open. I am basically betting that NUGT won’t revisit the extreme lows of December 2016. My reward if successful would be 25% on money risked. The 30% buffer from current price gives me an 85% theoretical chance of success.
Usually I like to balance my trades. In this case I want to sell upside risk against my bullish NUGT position.
The Hedge (Optional): Sell NUGT Jun $20/$21 credit call spread. This is a bearish trade for which I collect 20 cents per contract to open. If successful, this trade would yield 25% on money risked. This trade also carries a 85% theoretical chance of success based on current conditions.
Taking both trades won’t make it a perfect iron condor, but it would be the spirit of one. I have a total of 40 cents per contract in potential profit, but the timing is staggered. This would allow for easier trade management in leveraged tickers like NUGT.
Ideally, I want this ETF’s price to be rangebound between both sold spreads for it to expire worthless for maximum gains.
I am not required to hold my options trades through expiration. I can close any position at any time for partial gains or losses.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.