Taking My (Gold Stock) Ball and Going Home

  • SumoMe

In this article I wrote about a trade idea that involved the then very questionable idea of picking a bottom in gold stocks.  So did gold stocks actually bottom out?

The reality is that it is too soon to say.  But in the context of the trade I highlighted in the linked article, the only thing that matters is that they bottomed out “for awhile”.

Figure 1 displays the trade on the date of inception.

(click image to enlarge)1Figure 1 – Original Position in GDX put options (Courtesy www.OptionsAnalysis.com)

Figure 2 displays the trade as I write.  Basically three things have happened since 11/19.

  1. GDX rose from $13.97 to $14.35
  2. 22 days of option time decay has worked in favor of this option position
  3. This combination of factors has resulted in both options losing virtually all of their value.

The key to note is that the maximum profit has pretty much been achieved.  As a result, there doesn’t seem to be much point in holding onto this position through expiration (1 week from now).

(click image to enlarge)2Figure 2 – Updated Position in GDX put options (Courtesy www.OptionsAnalysis.com)

The only downside to exiting now is that the bid/ask spread and commissions will knock a few bucks off of the final profit.  But this is far better than holding on for another week and – the Market Gods being who they are – gold stocks deciding to plummet.

Jay Kaeppel