Options Traders Position for More Downside in Gold Miner ETF

May 16th at 12:37pm by Paul Weisbruch, Street One Financial

Gold Mining stocks, after a brief respite from an early April trouncing, have accelerated to the downside this week amid renewed interest in put buying in GDX (Market Vectors Gold Miners, Expense Ratio 0.52%).

The Miners have not responded well after spot Gold prices were clobbered beginning in early/mid-April, as top holdings in GDX including ABX (11.50%), GG (10.81%), and NEM (8.16%) for instance are trading at or near levels not seen since 2008.

GDX is the largest entry in the broad “Commodity Producers” category, holding $5.2 billion in assets under management (in spite of poor price performance) and trading a mammoth 21.4 million shares on an average daily basis.

Interestingly, GDX itself has only lost $300 million in net outflows this year due to redemption activity, seeming to convey the notion that the ETF is being used by longer term “buy and hold” investors and just for quick trading/hedging purposes.

We would expect in this period of price volatility and heavy selling pressure in individual component stocks, that we will see increased activity in ETFs that are related to GDX and/or have some overlap including GDXJ (Market Vectors Junior Gold Miners, Expense Ratio 0.54%), which has grown to become a $1.5 billion fund in its own right since 2009, along with XME (SPDR S&P Metals & Mining, Expense Ratio 0.35%), PICK (iShares MSCI Global Metals & Mining Producers, Expense Ratio 0.39%) and RING (iShares MSCI Global Gold Miners, Expense Ratio 0.39%).

SIL (Global X Silver Miners, Expense Ratio 0.65%) along with Silver the metal has seen price pressure as well in this environment and will also likely be in heavier play.

This morning, after sinking as low as $26.68 near the open, GDX has bounced back somewhat, actually up on the day in early action. Since GDX tracks the NYSE Arca Gold Miners Index, we expect linked leveraged ETFs, NUGT (Direxion Daily Gold Miners Bull 3X, Expense Ratio 0.95%) and DUST (Direxion Daily Gold Miners Bear 3X, Expense Ratio 0.95%) to see continued flurries of activity as well as traders embrace the recent volatility.

Market Vectors Gold Miners

gold-miner-etf-gdx

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

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