by Ian Harvey
IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!
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Option Trade – VanEck Vectors Gold Miners ETF (NYSEARCA: GDXJ) Calls
Monday, July 15, 2019
Using a Calendar Spread.....
** OPTION TRADE 1: Buy the GDXJ AUG 16 2019 36.000 CALL at approximately $1.36.
Place a pre-determined sell at $2.75.
Also include a protective stop loss of $0.55.
** OPTION TRADE 2: Buy the GDXJ NOV 15 2019 36.000 CALL at approximately $2.76.
Place a pre-determined sell at $5.50.
Also include a protective stop loss of $1.25.
Today we are looking at a different type of options trading to reduce our cost and profit in the short term on a move down or cash in over time if the price moves higher. Therefore, we will use a calendar spread on VanEck Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ).
A calendar spread is an options or futures spread established by simultaneously entering a long and short position on the same underlying asset at the same strike price but with different delivery months. It is sometimes referred to as an inter-delivery, intra-market, time, or horizontal spread.
Gold finally has its shine back. The world's favorite precious metal is sparkling again too. Recently, the price of gold topped $1,400/oz, marking its highest level in more than five years. Gold's move has come with surprising speed as well; it's up nearly 10% over the past month.
Not surprisingly, with gold surging, investors are starting to come back to a long dormant group of companies: mining stocks.
The main sector ETF, VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) has lost nearly half its value over the past decade. Meanwhile, the more speculative smaller gold companies fund, VanEck Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ) has lost a catastrophic 67% of its value. Again, that's during a time when the price of gold went up on net, and stocks in general soared.
Gold prices surged in June, thanks mainly to investors’ search for safer assets amid rising market uncertainty and geopolitical tensions.
And, the VanEck Vectors Gold Miners ETF, one of the largest gold miners exchange traded funds, is up more than 10% month-to-date, but some market observers believe there is plenty of value left in the resurgent gold miners group.
About VanEck Vectors Junior Gold Miners ETF…..
VanEck is a leader in gold investing. They introduced the first gold equity mutual fund--the VanEck International Investors Gold Fund INIVX--back in 1968, which Joe Foster, portfolio manager and strategist for gold at VanEck has been managing since 1998. They also offer the VanEck Vectors Gold Miners ETF GDX and the VanEck Vectors Junior Gold Miners ETF GDXJ, which are the biggest funds in the space, and the VanEck Merk Gold Trust OUNZ, which provides investors the option to take physical delivery of gold.
Gold miners have significantly outperformed the metal over the past month as they are high-beta plays on the price of gold. GDX and GDXJ soared about 23% in June since higher gold prices are a major tailwind for producers.
The industry saw a spate of M&A activity with Newmont Mining NEM acquiring Goldcorp in January to create the world’s largest gold miner, and Barrick Gold GOLD buying Randgold last fall.
Gold miner stocks and sector-related exchange traded funds has seen gold strengthen on growing global trade tensions and concerns over economic growth.
“Gold is being supported by Trump’s comments regarding Sino-U.S. trade tensions and also U.S. threatening with tariffs on European Union goods,” said Jeff Klearman, portfolio manager at GraniteShares.
After his meeting with Chinese President Xi Jinping, President Donald Trump commented that any deal with China would have to be "somewhat tilted" in favor of the U.S., adding to uncertainty over a deal any time soon.
Furthermore, Washington threatened tariffs on $4 billion in additional European Union goods in a long-running dispute over aircraft subsidies.
“The trade fiasco could be a positive factor for gold as the deal is still not reached yet,” said Carlo Alberto De Casa, chief analyst with ActivTrades. “The stock markets are in the red, which is another positive thing for gold.”
Gold has also found greater support from safe-haven demand and a more dovish outlook from major global central banks, notably the Federal Reserve's shift toward potential interest rate cuts to combat slowing growth.
“Geopolitical tensions around Iran breaching the 2015 nuclear agreement, which is seen as a provocation by Trump administration, and with market expectation of two or more rate cuts by the U.S. Federal Reserve this year, is helping gold to retrace,” Klearman added.
Looking ahead, lingering trade tensions and the Fed's monetary policy outlook will remain key factors in maintaining the momentum in the gold market.
“Upcoming U.S. economic numbers and Federal Reserve speakers’ comments are critical as we approach the Federal Open Market Committee meeting at the end of July,” UBS analysts said in a note. “The potential for renewed trade tensions and broader geopolitical risks, in our view, is likely to spur further inflows into gold by financial investors.”
Also, gold prices have been steady this year amid expectations for a weaker U.S. dollar and that the Federal Reserve will slow its pace of interest rate increases. Those scenarios are benefiting gold miners and ETFs such as GDX and GDXJ.
Bullion prices are inching closer to their loftiest levels this year on increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive, so money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
The movement in gold stocks is based on the movement of the price of
gold. Year to date, the senior mining stocks have been all the rage, so the
junior miners are playing catch-up. Senior mining stocks are usually less risky
than junior stocks because they are more liquid and have prices that are
typically subject to less volatility. In other words, there is more value to be
found in the junior mining sector right now.