InvestorPlace – Stock News, Stock Tips & Trading Tips

Gold stocks were rocked Thursday by widespread sales of precious metals. The losses come even as the rest of the stock market is adrift, so it’s not as if this is part of a larger risk-free environment. While this should be a heartwarming fact for those with a diversified portfolio, it doesn’t exactly lessen the sting for traders heavily invested in gold miners.

Gold prices closed more than 2% lower, while silver slipped just under 4%. Unfortunately, the higher beta of gold mining companies causes their stock prices to follow silver closer than gold. Still, with the industry’s ETF down more than 4% by midday, there is at least reason to be hopeful. Some gold related charts are in the main areas of long term support. This offers interesting trading opportunities depending on whether you want to bet that the floor holds or fails.

I have scanned the most liquid candidates in the gold mining space and narrowed it down to three worth negotiating.

• Gold miners ETF (NYSEARCA:GDX)
• Newmont mining (NYSE:NEM)
• Barrel gold (NYSE:GOLD)

To bring some variety, I’m going to share two uptrend ideas and a bear. Then you can take your pick depending on whether you want to bet for or against this week’s breakout attempt.

Gold stocks crumble like a rock: Gold Miners ETF (GDX)

GDX was the first and most obvious choice for playing the golden drop. It is Wall Street’s most liquid vehicle for playing gold miners and offers great diversification. The $ 31 price area has acted as major resistance and then major support for the past couple of years. We’ve tested it three times before this week, and all three have seen buyers play in defense.

Source: TD Ameritrade thinkorswim® platform

The volume and momentum behind Thursday’s sell-off might suggest the odds of breaking through support are high, but GDX’s position during its previous declines to this level was no less frightening. While I think selling put options would be the obvious contrarian idea here, I am disappointed that there was no more spike in implied volatility accompanying the plunge. As a result, the put options are not that juicy.

The most attractive game if you are a bear is to buy sell spreads.

The exchange: Buy the November $ 31 / $ 28 vertical put for $ 1.

You risk $ 1 for the chance to win $ 2 if GDX goes below $ 28.

Newmont Mining (NEM)

Source: TD Ameritrade thinkorswim® platform

As one of GDX’s largest holdings, it’s no surprise that Newmont Mining is also perched on a precipice. Since NEM stock broke above $ 55 in last year’s rally, it has acted as a major floor. However, with the sharp drop, prices are again probing support. As the drop in 200-day, 50-day, and 20-day moving averages suggests lower prices, it’s worth the wait and see if buyers will rally again to defend their territory.

If they do, this could be a good place to start some bullish games. You’ll need a bit of courage to pull the trigger, however. Alternatively, if the support does crack, I wouldn’t rule out a quick jump to $ 50. If you are willing to bet on the latter, then enter this position.

The exchange: Buy the November $ 55 / $ 50 vertical put for $ 1.60

You risk $ 1.60 to potentially capture $ 3.40 if the NEM drops to $ 50 on expiration.

Gold stocks are crumbling like a rock: Barrick Gold (GOLD)

Barrick Gold rounds out our trio of troubled gold stocks. Of the three, GOLD has the most mature downtrend and is furthest from its top. Thursday’s plunge saw more than 40 million shares traded, marking the second busiest session of the year.

Bears will indicate that the increase in volume is a worrying sign that institutions are abandoning ship. Bulls, on the other hand, could argue that the outsized turnout suggests surrender.

Time will tell which path the stock will take. Since we have already provided two bearish ideas, let’s go against the grain with GOLD by selling bare puts. Its inexpensive price tag maintains the minimum margin requirement.

The exchange: Sell the October 18 put for 38 cents.

Think of this as a bet that the GOLD will be above $ 18 at expiration. If not, you will need to buy 100 shares at an effective purchase price of $ 17.62.

As of the date of publication, Tyler Craig was LONG GDX. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.

For a free trial of the best business community on the planet and Tyler’s current home, click here!

The 3 Gold Stocks Sinking Like a Stone post appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.