Gold Miner ETF Options Trading Picks Up Amid Sell-Off

ETF Trends

Despite the drubbing that has already taken place in the Gold Miner stocks amid the plunge in Gold and precious metal prices, GDXJ (Market Vectors Junior Gold Miners, Expense Ratio 0.54%) options are beginning to trade actively.

The ETF, which debuted in late 2009 and holds seventy-eight individual equity names, has shed more than a third of its market capitalization inside of fifteen trading sessions.

It is trading with an $8 handle at the moment, an all-time low in the product, and we have seen action in January 5 and 6 strike puts. [Gold Miner ETF Eyes 2008 Low]

These options are no question significantly out of the money, but the trades express concern in the form of downside hedges being enacted here, if not outright bearish speculation on another leg-down in the Miners.

Notably, related ETF GDX (Market Vectors Gold Miners, Expense Ratio 0.52%) has also seen above normal activity lately, but the product is characterized largely by large cap Miner exposure, owning names like ABX (11.50%), GG (10.81%), and NEM (8.16%).

In fact, about 54% of GDX’s underlying portfolio is composed of mega to large cap names. GDXJ is however, another story, and times of day after day distress, which is exactly what is going on here in June in any industry related to spot Gold and Precious Metals prices amid this multi-year move.

GDXJ has exposure to a number of companies where the primary market for their publicly issued stocks is located in a country outside of the U.S.

For example, top holdings in GDXJ are currently AR (4.21%), TXG (3.76%), PMNXF (3.06%), OGC (2.91%), and CGG (2.91%) and about 94% of overall portfolio is invested in internationally based names (as compared to GDX’s 80% weighting outside of the U.S.).

The point is it can be tricky to trade smaller cap internationally based names in “off hours,” especially in times of market distress.

Any brave participant that is looking to trade the Miners at this juncture can expect abnormal intraday volatility and a surge in overall volume in the space because it has attracted a horde of new, shorter term oriented investors.

How have ETF institutional managers reacted to the recent plunge here? In GDX, more than $418 million has flowed into the fund in recent sessions and has net gained $525 million YTD (the fund has a total of $4.2 billion in assets under management and remains the second largest broadly categorized “Commodity Producers Equities” ETF in terms of asset size.

GDXJ, in spite of the recent put interest and fall in its underlying price, has still net attracted assets YTD (+$117 million) and is roughly flat in terms of net flows in recent sessions.

Other Mining related ETFs to watch closely here include XME (SPDR S&P Metals & Mining, Expense Ratio 0.35%), PICK (iShares MSCI Global Metal & Mining Producers, Expense Ratio 0.39%), SIL (Global X Silver Miners, Expense Ratio 0.65%), and RING (iShares MSCI Global Gold Miners, Expense Ratio 0.39%). Finally, a leveraged product tied to the Miners has seen its highest attention and volume ever in recent sessions since inception, NUGT (Direxion Daily Gold Miners Bull 3X, Expense Ratio 0.95%). DUST (Direxion Daily Gold Miners Bear 3X, Expense Ratio 0.95%), which is the three times daily leveraged “Bear” fund to the Miners, has been notably more quiet.

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

Street One Financial is an educational/research firm utilizing the Broker Dealer services of GWM Group Inc (RLCC) a FINRA registered Broker/Dealer. All trades are executed through GWM Group (RLCC) and cleared by Fidelity (NFS)DTC number 0226. Street One Financial LLC makes available products and services offered by GWM Group Inc., a registered broker-dealer and Member Securities Investor Protection Corporation (SIPC), Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

Rates

View Comments (0)