Back on October 7, I wrote a blog post on the potential move in gold stocks. That indication came from the options market. As size comes into the options on an ETF like the VanEck Gold Miners ETF (NYSEARCA: GDX) it’s historically been a good time to watch gold and gold stocks.
Well, guess what? Today was another one of those days for GDX and it happens to align with a seasonal trend that I’ve been talking about for a few weeks. Before we get to the option activity on GDX, let’s look at gold’s seasonal trend.
Tis the Season for Gold
Since December 2013, gold has found support at the end of the year and has staged a nice rally heading into the new year. As you approach February, the trend begins to reverse. You can see the trend by looking at the chart below.
(Click on image to enlarge)
As you can see, the pattern has repeated every year over the past 8 years. Is that in store for GDX in 2021 to 2022? Who knows, but at least today’s trade is an indication that we’re not alone in thinking that.
Not only has gold performed well, but gold has also typically outperformed the S&P 500 over that period. Looking at the potential news from the Federal Reserve with Wednesday’s FOMC statement, it looks like that drag is eminent this year.
The policy guidance may open the door for gold to rally in the near-term. The risk is a intrinsically stronger dollar. However, that doesn’t mean that gold and the dollar index move higher as the dollar does relatively better against currencies like the Euro, but intrinsically weakens.
GDX Option Activity
The unusual option activity that popped up today in GDX came late in the trading session. With less than nine minutes to go, a large order came in and filled in one print. Here is the summary of the activity:
- 7,464 31 DEC 21 $32 calls BOT in 1 print @ $0.24
- 7,464 31 DEC 21 $34 calls sold in 1 print @ $0.07
The trade that was filled was a long call vertical. The net debit was only $0.17 per share with a total notional value of $126,888. That’s not a million-dollar trade, but that is a lot of size to be filled in one trade and isn’t likely a retail trader. The trade reaches a maximum gain of $1.83 if the price is above $34 at expiration in 18 days. That means that the trade has a high reward-to-risk if there is a year-end rally in GDX.
Conclusion
Seasonal patterns exist and can help you identify recurring trading opportunities. While nothing is perfect, it is an indication and can be self-fulfilling. In this case, the potential news from the Fed may give gold the nudge that it needs. Also, at least one large trader thinks that it will be a golden holiday season this year.
Comments
Log in or sign up to join the conversation.