Gold ETFs Go Haywire on Yellen Speech

Gold ETFs are attracting attention from options traders after Yellen fueled expectations for a rate hike "in the coming months"

May 27, 2016 at 2:42 PM
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Gold prices are falling today, as an afternoon speech from Fed Chair Janet Yellen fuels expectations for an interest rate hike in "the coming months." With gold futures eyeing an eighth straight day of losses, several gold-tracking exchange-traded funds (ETF) are also moving lower. For instance, Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ)Direxion Shares Exchange Traded Fund Trust (NYSEARCA:JNUG), and Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) are retreating -- and catching the attention of short-term options speculators. Let's see how options traders are playing gold ETFs GDXJ, JNUG, and NUGT. 

GDXJ has fallen 3.9% to $33.21, though the gold ETF appears to be finding familiar support at the $33 level. Like most securities that track gold prices, GDXJ has had a fantastic 2016, gaining almost 72%. What's more, it looks like some options traders are calling for round-number support at $30 through the next Fed meeting, scheduled for June 14-15.

Roughly 8,400 GDXJ puts have traded, compared to fewer than 6,500 calls. Most active is the June 30 put, where it seems one trader sold to open a block of 1,000 about an hour after Yellen's speech began. Essentially, this trader is betting on Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) to stay north of $30 through front-month options expiration on Friday, June 17. 

JNUG is even worse off, giving back 10.2% to sit at $103.67, putting the shares on pace to close below their 10-week moving average for the first time since January. In fact, JNUG has landed on the short-sale restricted (SSR) list.

Options traders don't appear optimistic, with puts trading at two times the normal rate, thanks to intense interest in the soon-to-expire weekly 5/27 series. This put bias is far from unusual, though, as Direxion Shares Exchange Traded Fund Trust's (NYSEARCA:JNUG) 50-day put/call volume ratio of 1.00 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) marks an annual high, pointing to a bigger-than-usual appetite for bearish bets during the past 10 weeks. 

Shares of NUGT are down 7.2% at $71.58 -- and on the SSR list -- though they're trying to catch a lift from their rising 80-day moving average for the second time this week. Even with this week's slide, though, NUGT has nearly tripled in value in 2016.

Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) options traders are also rushing toward the weekly 5/27 series ahead of expiration tonight, though calls outnumber puts. At last check, total options volume was running at 1.3 times the intraday average, putting it in the 90th percentile of its annual range. Looking back, it's been a busy month in the ETF's options pits, with bearish bets picking up steam. 

Of course, today's drop in gold prices is a boon to ETFs that track gold on an inverse basis. For example, Direxion Shares Exchange Traded Fund Trust (NYSEARCA:JDST) and Direxion Shares Exchange Traded Fund Trust (NYSEARCA:DUST) are sporting respective gains of 12.4% and 7.9% today. 

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