VanEck Vectors Gold Miners ETF  (GDX)

Update 8/9/2021: I exited my naked call option position on GDX three days into the trade, for a $0.25 debit per contract/share, a profit before fees of $0.14 per contract. Shares were trading at $32.51, down $0.53 from the entry level.

My decision to exit was based on the fact that I found being in a position with no downside limit to be nervous-making and not to my taste. It was an experiment, and I doubt that I’ll repeat it any time soon. 

The price of GDX decline precipitously during my short holding period. And despite my concerns, the position was wildly successful.

Shares declined by 1.6% over three days for a -195% annual rate. The options position produced a 58.3% return for a 7,097% annual rate.

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I have sold a call option on GDX, using an option that trades for the last time 42 days hence, on September 17. The premium is a $0.38 credit per contract share and the stock at the time of entry was priced at $33.04.

The implied volatility rank (IVR) stands at 27.7.

I have not done much trading in which I sell naked options, a term meaning that there is no offsetting purchase to limit the loss. The trader is responsible for keeping losses reasonable. So I think of this small trade as education.

Premium:	$0.38	Expire OTM
GDX-naked	Strike	Odds	Delta
Calls
Short	36.00	82.0%	22

The profit zone covers an 8.2% move to the upside.

The risk/reward ratio is 8.7:1, with cover risk of $332.24 and maximum reward of $38 per contract. The cover risk is based on the amount required by brokerage to cover the position. The maximum loss, if the stock goes to zero, is $3,600, the price of 100 shares.

I structured the trade using Elliott wave analysis. The degree labels are relative to one another and don’t refer to named degrees. GDX has fallen from its May 19 peak in a what is either a 1st wave within a downtrend, or an A wave within a correction. In either case, I’m anticipating that the price will remain below the $35.82 August 4 peak. If the price approaches that level, then I will consider rolling it further up to return the position to profitability. The ability to make such adjustments is one of the huge advantages afforded by naked options.

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By Tim Bovee, Portland, Oregon, August 6, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.