Unusual Options Activity In Market Vectors Junior Gold Miners ETF $GDXJ

| December 16, 2015 | 0 Comments

miningUnusual Options Activity Market Vectors Junior Gold Miners ETF $GDXJ 

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.So let’s take a look at some ‘interesting’ activity that caught our eye this week:

Market Vectors Junior Gold Miners ETF $GDXJ is the most popular industry ETF for trading junior gold miners.  The ETF trades nearly 10 million contracts a day on average.  For a good description of the fund, follow the link.

$GDXJ is trading at $19.05, down 21% for the year.  That’s 38% below the 52-week high and just 6% above the 52-week low.

So what does unusual options activity in GDXJ tell us?

Gold has not had a good year.  The precious metal is down over 10% on the year.  Gold miners have had it even worse.  And junior miners… well, they’re down over 20% for 2015.  Basically, gold has been out of favor with a strong dollar as a safe-haven alternative and no inflation to speak of.

Now, the Fed is expected to start raising rates this week.  Not only is that an anti-inflationary action, it could also make the dollar even more attractive.  In other words, there are still plenty of reasons to stay away from gold.

Here’s the deal…

Recently, a large amount of calls traded in GDXJ.  As a reminder, a call option makes money when the underlying stock goes up before its expiration date.

To be more specific, a trader bought a block of 5,000 19 calls expiring in January.  The price paid for each contract was $1.25. Those are the at-the-money calls.  In this case, volume is well above open interest, so it looks like opening action.

Here’s the chart of $GDXJ

unusual option activity, a chart of $GDXJ

GDXJ has clearly not had a great year.  As you can see, the ETF has remained below the 50-day moving average since plunging lower in early November.

This is an interesting trade because it seems to go against the fundamentals.  Granted, the options are right at the money, so it won’t take a huge move to make this trade a winner.  However, it’s an unusual play for this ETF, which doesn’t generally have a lot of block trades in it.

It could be a bet that the markets will be less stable after the Fed rate hike, due to more uncertainty over the future of interest rates.  Uncertainty is a bullish situation for gold.  Or, maybe the trader just feels the industry is undervalued.   We’ll know soon enough since these are January options.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.