Gold Stock Pullback Is Here

One of the few markets which is actually taking a break after a strong rally.

Gold Stocks Peaked May 19

The price of popular GDX gold stock ETF has had a large three week decline of 13%. The recent breakout has created a support zone between $28 and $30 per share. With breakout support and a rising 200 day moving average this is a great time to sell a put for income.

The put sale pays investors upfront for waiting to buy shares cheaper. It is a market neutral to slightly bullish trade. It is great to get paid before waiting for the pullback to complete the pattern.

Gold has a lot going for it these days. An economy in disarray, global geopolitical uncertainty and global central banks printing currency like there is no tomorrow. Gold stocks do exceptionally well in a rising gold market environment.

Trade details:

Sell to open, the June 19, $31.50 puts on GDX for $0.55 using a limit order. You will earn a 1.74% upfront payment on your purchase obligation for agreeing to buy shares in 11 days at a 3% discount.

At expiration if shares are above $31.50: put sellers will keep the $0.55 for a 57% annualized return.

At expiration if shares are below $31.50: put sellers will buy shares almost 5% below Friday's closing price including the upfront payment. Then you will either hold shares for long term gains or earn more income selling covered calls.

Use a 25% stop starting at the adjusted cost basis of $23.21.

Sell puts today and earn a nice profit in 11 days.

P.S. Only sell the number of puts you can afford to purchase 100 shares of stock or $3150 each. The successful traders do not gamble and focus on risk management. GDX would be a great position to hold for the next several years but in the short term stock price can go anywhere.

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Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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