A recent traded attempting to take advantage of increased volatility in gold, provides an example of how to profit without predicting the direction of the market, reports Jay Soloff.
Gold prices could be set to move at least 15% in either direction by the start of next year. When confronted with such an outlook, traders can take a position that will profit on a move—increased volatility—in either direction without having to pick a side. This is called trading long volatility and the toll to do this is options straddles and strangles.
A trader putting on a long straddle will benefit from a significant move in either direction—increasing volatility. That trade will lose if the underlying market remains range bound and does not move significantly in either direction.
There was a recent example of this in the VanEck Vectors Gold Miners ETF (GDX).
A trader purchased more than 1,000 GDX straddles, which is an options strategy used to bet on movement in an underlying asset without trying to guess direction. This particular straddle suggests a big move could be coming in either direction for big gold miner stocks, which closely track the price of gold.
