Calls Hot as Gold ETFs Surge

Gold ETFs Direxion Daily Gold Miners Bulls 3X Shares (NUGT) and Market Vectors Gold Miners ETF (GDX) are both surging higher today

Apr 11, 2016 at 11:58 AM
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The Direxion Daily Gold Miners Bulls 3X Shares (NUGT) and Market Vectors Gold Miners ETF (GDX) are both surging higher yet again, thanks to rising gold futures and some bullish analyst attention. More specifically, June-dated gold futures are up 1.1% at $1,257.30 per ounce, while RBC upwardly revised its outlook on several commodity stocks this morning. Gold stocks are gaining as a result, sending these two exchange-traded funds (ETFs) to new highs and options volume soaring. 

NUGT has added 17.1% to hit $83.41, putting the ETF on pace for its best close since late June. Since breaching the $20 level back in January, NUGT has more than quadrupled in price -- a 375% gain in less than three months. In fact, the shares easily jumped over their 320-day moving average for the first time ever today. 

Call options are trading at three times the average intraday pace, thanks to heavy interest at the weekly 4/29 100 strike. Data suggests traders are buying to open these options, meaning they're betting on the surging ETF to catapult through the century mark by the end of April. 

Outside of this strike, the front-month April series is dominating, with the 80, 85, 90, and 100 calls seeing heavy activity. However, the April 70 put is the most popular option, with more than 1,300 contracts traded so far. 

Looking back, skepticism has been evident at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). That's because traders have bought to open 1.21 puts for every call during the past two weeks. This ratio stands as an annual high, meaning puts have never been bought to open over calls at a faster rate. However, given the Direxion Daily Gold Miners Bulls 3X Shares' (NUGT) amazing technical success, some of this may be indicative of hedging

GDX is up 5.3% at $22.57, and fresh off a new annual high of $22.64. The gold ETF has now exploded 82% since its mid-January lows around $12 -- including a 12% jump during the past three sessions.

GDX call options are trading at twice the intraday norm, with volume arriving in the 96th percentile of its annual range, and more than doubling puts. The most popular strike is the June 25 call, which traders may be buying to open to bet on extended gains over the next couple months. It looks like other traders are selling to open the May 26.50 call, in hopes of the ETF holding below $26.50 through back-month options expiration. 

Longer term, the Market Vectors Gold Miners ETF (GDX) has also seen heavy put buying at the ISE, CBOE, and PHLX. The ETF's 10-day put/call volume ratio across these exchanges is 1.06 -- just 1 percentage point from an annual high. If GDX continues its hot streak, an unwinding of pessimism could drive the shares higher -- though some of the long puts may be protective in nature.

On the other hand, it's been a terrible day for the Direxion Daily Gold Miners Index Bear 3X Shares (DUST) bulls. This ETF -- which essentially tracks gold prices on an inverse basis -- is down 14.5% at $2.19, and earlier panned an all-time low of $2.13. 

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