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Actionable news in NEM: NEWMONT MINING Corp,

A Cushion For The Correction In Gold Miners


Last month, we posted a hedge for GDX, the gold miners ETF. Here, we look at how that hedge has reacted to the drop in GDX since.

Although the hedge was designed to protect against a >20% decline, and GDX was down 14.6%, the hedge would have limited an investor's decline to 8.2% by Friday.

We elaborate and discuss future courses of action for hedged GDX longs.

Gold Miners: Riding The Bull While Reducing Risk

That was the title of our article last month on hedging the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX). Since then, GDX had dropped 14.6%, as of Friday's close.

In last month's article, we mentioned that GDX was expensive to hedge using puts, so we just showed an optimal collar hedge for it. Below, we'll recap that hedge and show how it reacted to GDX's drop since. Then we'll consider future courses of action.

The August 15th Optimal Collar Hedge:

As of August 15th's close, this was the optimal collar to hedge 1,000 shares of GDX against a greater than 20% drop by mid-March while not capping an investor's upside at less than 26% by the end of that time period (screen captures via the Portfolio Armor iOS app).

As you can see at the bottom of the screen capture above, the cost was negative, so an investor would have collected an amount equal to $260, or 0.84% of position value (calculated conservatively, using the ask price of the puts and the bid price of the...