$DUST Blow-off Top Coming? The Explosion Variety

I was tweeting yesterday around how $DUST , the 3x Mining Bear ETF, could be in the process of making a monster move the next few days, despite the stock being up over 150% since August, and being up 22% on Thursday.

DUST tweet

Crazy? Well I don't think so. These 2x-3x bull/bear ETFs tend to have larger moves the further the underlying basket stocks rise/fall. The best example I can give, is from the 2008 crisis, when SKF, an ETF that  that correspond to two times the inverse (-2x) of the daily performance of the Dow Jones U.S. Financial Index, had moves of100% in just a few days. Those moves accelerated, and were more exaggerated,  towards the bottom/top of the run:

SKF 2008 chart


Of course this is not 2008, and I don't think there is any 'financial crisis' coming anytime soon. But I do think there will be continued weakness in Gold and Gold Miners, and like DUST as a way to play the downside. These ETFs can be extremely volatile, but can also be very profitable for an option trader in before the big move. Here are my previous thoughts on Silver/Gold from 2013 : https://www.optionmillionaires.com/silver-ready-for-next-leg-to-the-downside/ and my top call from March : https://www.optionmillionaires.com/pot-gold-end-rainbow/ .

I think the conditions are ripe for another fade on Gold, and will be watching the $1125 area as the next support. A move like that will put $DUST above $60:

DUST 10-31-14 1

I currently hold Nov $49 DUST calls at 1.35, and may buy or sell more positions in the coming days. Also, be aware that these 3x bull/bear ETF's decay in price over time, so I never look for a long term investment in them.

Happy trading!

- JB

JimmyBob (Scott)has been trading equities for over 15 years, a majority of which were OTC micro-cap stocks. He started trading high risk stock options over the past 7 years, and has proven winning trades in excess of 15,000%.

As one of the Co-Founders of optionmillionaires.com, Scott enjoys sharing his knowledge with other investors through timely blog posts, daily watch lists in the forum, weekly webinars, and helpful advice within the chatroom.

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