Direxion Shares Exchange Traded Fund Trust (NUGT): Free Profits!

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.

Direxion Shares Exchange Traded Fund Trust (NUGT): Free Profits!

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.

NUGT ETF chart
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.


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