×

How one trader plans on tripling his money by betting against gold

Gold is poised to take a serious hit in the weeks ahead, according to technically minded trader Todd Gordon, and he has a way to profit from the expected next move.

Gordon's analysis starts with the U.S. dollar. He believes it is set to break out of its 18-month range specifically, breaking through resistance to the upside.

"You're starting to see some life in the dollar," Gordon said Friday on CNBC's "Trading Nation."

There is an inverse relationship between interest rates and the dollar and "as dollar moves up, commodities should move down," Gordon pointed out. He believes that if the dollar continues to move up, the "gold market is set to crumble."

The ETF that tracks gold futures, GLD, is sitting at the $125 mark, but Gordon sees it pushing down toward $120.

To profit off of this anticipated drop, he turns to the options market, buying the October 125-strike puts and selling the 120-strike puts. The trade costs $1.67 per share or $167 per options spread. If GLD closes at or below $120, he will make a profit of $3.33 per share.

All in all, he is risking $167 to potentially return $500, which means he could triple his money.

However, "if GLD were to rally back above the $126.50 mark, I'm going to get out of the trade," Gordon said.

Gold slipped slightly on Friday, but is still up 24 percent on the year.

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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more

Connect