By Steven M. Sears
While stocks have had a nice run since investors got over the Brexit, gold has been rallying all year. The yellow metal is up 26% in 2016 and gold miners, which tend to rise faster in good times and fall harder in bad, have more than doubled. Now some investors have begun positioning for the miners to tumble.
Just recently, an investor bought 16,700 July $30 puts on the VanEck Vectors Gold Miners exchange-traded fund (ticker: GDX ), which is up 121% this year. Over the past 10 sessions, investors have bought 57,000 August $24 puts, 52,000 August $28 puts and 41,000 August $25 puts.
The large trading sizes indicate that investors with major gold positions are securing their gains even though the forces pushing gold higher — including a strong U.S. dollar and easy money worldwide — remains intact. SPDR Gold Trust ( GLD ) trading, however, remains largely bullish.
The defensive posturing likely reflects the fact that all trades eventually stall, or run out of new money needed to keep pushing prices higher. Sometimes this prompts a quick tumble, as suggested by the GDX puts, and sometimes it is more sustained. On Tuesday, GDX fell about 4%, though it has bounced higher in the current session.
Chris Jacobson, a Susquehanna Financial Group strategist, is advising investors who own the GDX ETF to sell their positions and open “call spreads” to maintain exposure with lower risk. The position enables investors to sell high and creates a lower-cost options surrogate.