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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.

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.

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