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)
Figure 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.
- GDX rose from $13.97 to $14.35
- 22 days of option time decay has worked in favor of this option position
- 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)
Figure 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
