Trading Nation

Trader makes a bold bullish play on gold

Here's how to play gold ahead of a rate hike
Investors committing the “free dividends fallacy”?
Time to buy protection?

It's high time to bet on a big gold bounce, according to one chart-minded trader.

The yellow metal has slid postelection as the dollar has risen and as investor anxiety has declined. But while a widely anticipated Federal Reserve rate increase could be expected to hurt gold, the announcement may actually boost gold, according to Todd Gordon of

"If the Fed hikes, and they most likely will, and don't deliver any sort of concrete information as to when they're going to hike again, you could see the dollar sell off and the gold market rally," Gordon said Tuesday on CNBC's "Trading Nation."

To express a bullish view, Gordon recommends selling the January 111-strike put on the GLD ETF that tracks gold for about $2 per share.

If the GLD closes above $111 on Jan. 20, Gordon will get to keep that entire options premium. On the other hand, the sale compels Gordon to buy shares of the ETF for $111 even if it falls well below that level — meaning that if gold plunges, the trade could generate substantial losses. Still, because Gordon is willing to buy GLD at that level no matter what happens, he doesn't mind taking the risk.

Alternatively, Gordon says that traders can just buy GLD outright to take advantage of an expected gold bounce.

GLD is currently up about 10 percent year to date, though the ETF has sold off significantly since the election, dropping more than 14 percent from its July highs.

Trader takeaway: Gordon sees a possible gold rally, so on the GLD ETF, he's selling the January 111-strike put for $2.