Market Vectors Gold Miners ETF (GDX) and the $600K Options Bet

One options trader bought to open more than 21,000 Market Vectors Gold Miners ETF (GDX) puts -- but why?

by Alex Eppstein

Published on Jul 5, 2016 at 3:29 PM
Updated on Jun 24, 2020 at 10:16 AM

The Market Vectors Gold Miners ETF (GDX) is nearly 2% higher at $29.61 -- and fresh off a two-year high of $29.76 -- as the broad-market bloodbath sends traders racing for safe-haven investments like gold. However, GDX puts are crossing the tape at double the expected intraday rate, and are easily outpacing calls.

Most active by a mile is the August 24 put, where nearly 49,000 contracts have been exchanged. According to Trade-Alert, the biggest transaction centered on a sweep of 21,589 contracts bought to open for $0.29 apiece -- or a total of roughly $626,000 (premium paid * number of contracts * 100 shares per contract). Given gold's rapid ascent, buyers of this out-of-the-money strike are likely hedging their portfolios against an unexpected pullback in gold stocks. No matter the motive, the most the aforementioned trader has to lose is the initial premium paid, should GDX settle above $24 at August expiration.

Taking a quick step back, puts have been the options of choice lately at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the past 10 weeks, the exchange-traded fund (ETF) has racked up a put/call volume ratio of 1.35 -- just 12 percentage points from an annual high.

Likewise, the Market Vectors Gold Miners ETF (GDX) sports a Schaeffer's put/call open interest ratio (SOIR) of 1.17, with puts outstripping calls among options expiring in the next three months. Relative to the last year's worth of data, the current SOIR sits in the put-skewed 84th annual percentile.

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