Gold Sell-Off Sends 2 ETFs on a Wild Ride

A dismal day for gold has translated into pain for the Direxion Daily Gold Miners Bulls 3X Shares (NUGT) and gains for the Direxion Daily Gold Miners Index Bear 3X Shares (DUST)

by Alex Eppstein

Published on Apr 1, 2016 at 11:01 AM

The Direxion Daily Gold Miners Bulls 3X Shares (NUGT) and Direxion Daily Gold Miners Index Bear 3X Shares (DUST) are making sharp moves once again. The exchange-traded funds (ETFs) are swinging in response to gold, which is selling off following the latest nonfarm payrolls report. Below, we'll break down the big moves, and see how options traders have been wagering on NUGT and DUST.

NUGT is following the bearish lead of gold, dropping 7.3% to trade at $54.28. The gap lower has the shares on track to finish below their 40-day moving average for the first time since late January. However, the ETF has put on a clinic in 2016, up nearly 124%. 

Meanwhile, options traders have been betting on a pullback at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, NUGT's 10-day put/call volume ratio of 1.15 across this trio of exchanges sits just 1 percentage point from an annual high. It's possible some of these long puts were initiated by shareholders to serve as protection.

On the other hand, short sellers have been abandoning ship. During the last two reporting periods, short interest on the Direxion Daily Gold Miners Bulls 3X Shares plummeted over 53%. It would take less than one day for short sellers to buy back their remaining positions, at NUGT's average trading levels.

Turning to DUST, the shares have surged 7.7% to trade at $3.48, being inversely correlated to the price of gold. Of course, the ETF is still a far cry from its 2016 high of $20.96, notched in mid-January -- having fallen over 83% since then.

Traders at the ISE, CBOE, and PHLX have been buying to open calls over puts at an extreme rate in recent weeks. DUST's 10-day call/put volume ratio stands at a 12-month high of 22.40, with long calls outstripping puts by a more than 22-to-1 margin.

However, not all of these call buyers may be bullish toward the Direxion Daily Gold Miners Index Bear 3X Shares. Short interest on the ETF rocketed by 184.2% during the two most recent reporting periods, so it's possible traders have been targeting calls to act as an upside hedge.

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