Trader makes a bold bullish play on gold

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 TradingAnalysis.com.

"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.


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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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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