The VanEck Vectors Gold Miners ETF (GDX) is on a torrid pace and the exchange traded fund’s recent strength is prompting some unusual options activity.
GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. Stock fundamentals like cost deflation across the mining industry, share valuations below the long-term average and rising M&A are all supportive of the miner’s space as well, but those fundamentals could be glossed over if the dollar strengthens. There are indications that the current gold bull market could last awhile.
“In the options pits, the VanEck Vectors Gold Miners ETF’s call volume today is pacing in the 90th annual percentile, with over 128,000 calls exchanged so far. Also seeing heavy volume are puts, with 1.7 times the expected intraday amount having changed hands already (66,713 contracts versus about 40,000 expected),” according to Schaeffer’s Investment Research.
Assessing The Gold Rally
Gold ETFs are pushing to the upside amid 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 that the 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.
“Among the most active GDX option strikes are the January 2020 25-strike put and January 2020 33-strike call, which look to have been involved in a bullish volatility transaction called a long strangle. Diving in, it looks like a trader bought to open 2,000 of the January 33 calls for $1.50 each, and simultaneously bought to open 2,000 of the January 25 puts for $0.56 each,” notes Schaeffer’s.
GDX, the largest gold miners ETF by assets, is higher by nearly 41% year-to-date, making it one of 2019’s best-performing non-leveraged ETFs.
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