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How trader is hedging gold miners

Chris McKhann (chris.mckhann@optionmonster.com)

A large spread is apparently hedging a position in the Market Vectors Gold Miners ETF.

optionMONSTER systems show that a trader bought 10,000 June 35 puts for $0.94 and sold 10,000 June 42.50 calls for the bid price of $0.70 on Friday. This is a new position, as volume was above the open interest at each strike before the session began.

This is very likely a collar to hedge a long stock position, using the sale of the calls to offset as much as possible of the cost of the puts. That would provide protection below $35 but give up any gains above $42.50.

The GDX was down 0.65 points on Friday to close out the week at $38.18 as it struggles to rebound from a 52-week low of $35.57 reached at the start of March. The exchange-traded fund had been trending lower from its 52-week high above $55 set in last September.  

More than 62,000 GDX options traded on the day, compared to 40,000 over the last month.

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