The $8.9 billion Market Vectors Gold Miners ETF (NYSEArca: GDX) was up 23% from its May 16 intraday low in early trading Wednesday.
The recent bounce in the long-suffering ETF has attracted bullish activity in the options market, according to reports. Contracts on ETFs can be traded just like individual stocks and indices.
GDX rose more than 1% to above $48 a share in morning action.
The gold miner ETF “drew some bullish option activity Tuesday as traders focus increasingly on precious metals,” says OptionMonster co-founder Jon Najarian.
He said total volume in the fund was almost 123,000 contracts, nearly twice its daily average.
“The latest volume surge occurred in the July 49 calls on the exchange traded fund, which tracks several leading gold producers. More than 13,000 of those options traded against previous open interest of 1,002 contracts, indicating that these were new positions,” Najarian wrote at TheStreet.
“Calls fix the price investors must pay for shares in the fund. They can provide significant leverage, doubling or tripling in price from a move of just 10% in the stock, but can also expire worthless if a rally doesn’t occur,” he explained.
Sterne Agee analysts in a note this week said gold miners are underpriced after the carnage this year in the sector. [Central Bank Stimulus Would Rally Gold ETFs]
Gold miner ETFs, once left for dead, are starting to show some positive technical signs. [Have Gold Miner ETFs Finally Reached the Turning Point?]
“These options flows are not surprising given that GDX recently bucked the overall market trend beginning late last week and the ETF is now starting to break out after a prolonged period of underperformance to spot gold prices,” said Paul Weisbruch at Street One Financial.
“Trading volumes in the underlying ETF in GDX have been off the chart in recent sessions as well compared to average daily turnover. Now that the equity markets in general are starting to trade above specific technical levels once more such as the S&P 500 above its 200-day moving average today, it is not surprising to see money chasing what is considered a ‘higher beta’ sector, and moreover, one that has significantly trailed the broad equity market … as well as spot gold prices.”
Market Vectors Gold Miners ETF
