Market Vectors - Gold Miners ETF (GDX) 11/18/09 PriceWatch Alert With 7.47% Downside Protection

Posted: Wednesday, November 18, 2009 8:11 AM EDT
By: Market Intelligence Center Staff

Market Vectors - Gold Miners ETF (PCX: GDX) closed yesterday at $51.53. So far GDX has hit a 52-week low of $17.59 and 52-week high of $51.89. GDX has been showing support around 49.69 and resistance in the 52.51 range. Technical indicators are Bullish. GDX appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Jan '10 51 covered call (GDX AY) for a net debit in the $47.68 area. That is also the break even stock price for this trade. This covered call has a 59 day duration, provides 7.47% downside protection and a 6.96% assigned return rate for a 43.08% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the GDX Jan '11 20 Call (XAC AT) and selling the Jan '10 51 call (GDX AY) for a $27.90 debit. The trade has a 59 day life and would provide 7.04% downside protection and an 11.11% assigned return rate for a 69.00% annualized return rate (for comparison purposes only). [WBA-Seven Summits Research]