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TheStreet Open House

Quick Take: Dollar and Gold Trade

Stocks in this article: GDX

NEW YORK ( TheStreet) -- Gold popped above $1,300 per ounce and the U.S. dollar continues to decline. Discussing how to play the move is Alan Knuckman, chief market strategist of Trading Advantage, with TheStreet's Jill Malandrino.

Knuckman said gold prices have been stalling lately, but could be putting in a bottom as the U.S. dollar continues to decline after making 2 1/2-year highs in July.

To take advantage of the move, he was long the December 1,300/1,350 call spread, which has double since being initiated. He still believes over the long-term that gold can get above $1,400 per ounce.

With gold appearing to form a bottom near $1,300, the outright metal might not be the best way to play the impending rise. Instead, the miners could outperform.

According to Knuckman, the Market Vectors Gold Miners ETF (GDX) is the way to go. The decline in miners is about twice that of gold in 2013, and therefore, should rebound harder when gold does move higher.

He said traders could buy the March 2014 $20 call options, which have 7.5 months until expiration. The ETF currently trades near $25, which puts the call deep-in-the-money. Should a rally ensue, the position will track the price at a very high correlation and will break even when the GDX is at $26.25.

The ETF hasn't been below $20 since 2008, making it a favorable risk-to-reward trade.

-- Written by Bret Kenwell in Petoskey, Mich.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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