I'm Mining for Opportunities Amid Inflation Fears

Judging by the action in gold, the markets finally appear to be taking the threat and prospect of inflation real. Gold and gold miners are off March lows, but still far from August highs. What matters more: stimulus or talk of stimulus and the prospect that comes with it or actual belief in inflation?

I vote the latter. I've dabbled in individual miners here and there, but I prefer to take the exchange-traded fund approach this time around for a slightly longer time frame view.

It's likely we're seeing momentum money rotate into inflation hedges, as well as large-cap names. The shift in risk tolerance doesn't seem to be dying any time soon. While trend chasing played out fantastic in 2020, diversity of risk has led the way in 2021.

In considering a longer-term trade, the weekly chart provides a better view for the VanEck Vectors Gold Miners ETF (GDX) . Shares are up strong this week, jumping 7%. It's a reversal of the beatdown from last week. A close above $36 tomorrow would trigger a breakout on the ascending triangle pattern. We already see breakouts in the Full Stochastics and StochRSI indicators. Additionally, shares bounce off the 10-week simple moving average (SMA) as well as the 21-week SMA. If GDX can get a little more push to the upside, expect the 10-week SMA to cross above the 21-week SMA as well.

The upside here initially rests in the $40 to $41 range. It is possible we retest the August highs from 2020 during the summer of 2021 as well. I want to play this through the summer.

The trade:

Buy to open Sept. 17 $36 call at $3.35

Net cost: $335

Max risk: $335

Max reward: unlimited

Breakeven: $39.35

Intrinsic value: $100

Days until expiration: 134

This option doesn't for expire for four and a half months, so it provides plenty of time for the position to play out. GDX could fall $4 and this would only lose about half of its value. A $4 move higher on GDX should nearly double the calls. That's what I'm looking for here, but I'd be happy to take half off with a 50% gain should we see it.

At the time of publication, Timothy Collins was long GDX calls.