Sharp Moves Abound for Gold ETFs

The Direxion Daily Gold Miners Bulls 3X Shares (NUGT) and Market Vectors Gold Miners ETF (GDX) are sinking, while the Direxion Daily Gold Miners Index Bear 3X Shares (DUST) is sizzling

by Alex Eppstein

Published on Mar 23, 2016 at 11:58 AM
Updated on Jun 24, 2020 at 10:16 AM

Gold stocks are getting battered today, as hawkish comments from one Fed official lift the dollar. Case in point, the Direxion Daily Gold Miners Bulls 3X Shares (NUGT) and Market Vectors Gold Miners ETF (GDX) are both staring at steep intraday losses. On the other hand, the Direxion Daily Gold Miners Index Bear 3X Shares (DUST) is up big. Below, we'll take a closer look at NUGT, GDX, and DUST, and how options traders have been betting on the three.

At last check, NUGT has shed over 14% at $56.95 and has landed on the short-sale restricted list. This represents quite the reversal for an exchange-traded fund (ETF) that has more than tripled in value since bottoming at $17.40 in mid-January. Of course, the pullback isn't necessarily unexpected for NUGT option traders, as its 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.84 ranks in the bearishly skewed 91st percentile of its annual range.

Now appears to be a good time to buy premium on the Direxion Daily Gold Miners Bulls 3X Shares, too. The ETF's Schaeffer's Volatility Index (SVI) of 124% sits below 94% of all comparable readings from the past year, indicating short-term options are pricing in relatively low volatility expectations. What's more, NUGT's Schaeffer's Volatility Scorecard (SVS) of 98 suggests the ETF has tended to make outsized moves in the prior year, relative to what the options market has priced in.

Options traders have been similarly skeptical of GDX, which is down 4.2% at $19.72, as gold mining stocks fade. The ETF's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.78 is located just 10 percentage points from an annual high. Underscoring this put bias, the Market Vectors Gold Miners ETF sports a Schaeffer's put/call open interest ratio (SOIR) of 0.67, ranking in the 85th annual percentile. In other words, short-term speculators have rarely been so put-skewed toward the shares.

Meanwhile, DUST has jumped 12.5% to trade at $3.52. Longer term, though, the ETF is beaten down, touching a record low of $2.79 last week, and underperforming the broader S&P 500 Index (SPX) by roughly 80 percentage points over the past 40 sessions.

Yet, options traders have been betting on a bounce for the Direxion Daily Gold Miners Index Bear 3X Shares. Its 10-day ISE/CBOE/PHLX call/put volume ratio sits at an annual high of 20.33, with more than 20 calls bought to open for each put. Likewise, DUST's SOIR registers at a 12-month low of 0.24, with calls more than quadrupling puts among options with a shelf-life of three months or less. However, given DUST's technical struggles and the fact that short interest more than tripled during the last two reporting periods, it's possible some call buyers are actually short sellers hedging against a surprise upside move -- like the one we're seeing today.

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