×

Gold's going back to its lows—how to play it: Trader

There's just no love for gold.

The precious metal fell Monday, retreating from a three-week high in the previous session, as investors shook off last week's Fed decision to leave interest rates unchanged. Gold is now down more than 4 percent on the year, and according to one trader who relies heavily on the charts and options market, it's about to get a lot worse.

Read MoreGold rally set to fizzle out: Expert

Looking at a chart of the GLD, the ETF that tracks gold, Andrew Keene noted a series of failed rallies this year. "Every time we see a move above the 50-day moving average, it proves to be a false breakout," Keene told CNBC's "Trading Nation" on Monday, marking four distinct moves. "I think this is going to be the fifth time and we are going to find sellers," added the founder of AlphaShark Trading. "I think we head back to that $105 level, where we bottomed out a week and a half ago." That's a 3 percent decline from Monday's price of around $108.50.


To play for a drop in the GLD, Keene purchased a put butterfly. This is a bearish options strategy where a trader will buy one put, sell two lower strike puts of the same expiration and then buy one additional lower strike put. The goal is for the stock, or in this case, ETF to fall to the strike that you are short.

Specifically, Keene purchased the GLD October 107/105/103 put butterfly for a total cost of 25 cents. In this defined-risk strategy the trade is most profitable if the GLD falls to 105 by the third week of October, but it does allow investors to make money across a wider range.

"If GLD expires on October expiration between $103.25 and $106.75 I will make money on this trade," added Keene. "This is a great reward-to-risk setup in the GLD."

Want to be a part of the Trading Nation? If you'd like to call into our live Wednesday show, email your name, number and a question to TradingNation@cnbc.com

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect