Gold Miners Tumble - GDX Trade

GDX has been a notable laggard as improving investor risk sentiment from economic recovery hopes and U.S. private payrolls showed fewer job losses than forecasted.

I opened some 6/5 $33 puts when GDX was trading around $34. I was under water as we ran towards $36. As sentiment changed the price collapsed and I ended up trading in the money yesterday for an approx. 80% gain.

So where do we go now. I think gold and miners will be a good trade into mid and end of the year. My thought process is as governments increase money supplies inflation will rise leading investors into gold. This coupled with a lower supplies should drive price up.

I like gold and miners long term, but with such a rapid decline over the past couple of days I’m expect a bounce to correct this overreaction.

Looking at the rsi we were in oversold territory and we are looking to open up a 1%. I’ll be looking at the open and will mostly likely buy the 6/12 $34 calls around 9:45am. My plan to buy 2 contacts at time with a total purchase of 10 contracts.

This will be a short timeframe trade closing by Friday. My trade profit target is 30% and max loss is 15% after averages.

The though behind this trade is to play overreaction of the recent price decline. What are your thoughts on the trade?

update Here’s the entry point.

I averaged down to $0.56 on 5 contracts and we closed at $0.49.

The setup was going well up until 12:45 when the market decided to turn. I don’t like the setup as much as I did yesterday so I decided to scale the trade down to only 5 contracts at this point. I did not see the head and shoulder pattern in the 20 day chart so I will monitor the over night action to determine if I’ll be extending or closing the trade.