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The price of gold suffered its largest single-day drop in nearly three weeks yesterday. Accordingly, shares of the SPDR Gold Trust (ETF) (NYSEARCA:GLD) shed close to 2% to land at $127.48, bringing them to a year-to-date loss of about 21%. What's more, the ETF closed Wednesday's session underneath its 50-day moving average -- just a day after finishing above the trendline for the first time since late November.
That disappointing price action didn't deter one confident option bull, however, who lined up to get his hands on a couple of blocks of long-term GLD calls. Specifically, it appears that a single trader was behind the vast majority of the volume at the January 2015 170 strike, where roughly 12,100 contracts changed hands.
Two 6,000-contract block trades went off near the ask price almost simultaneously around 2 p.m. ET, and open interest at the strike spiked overnight, together indicating the LEAPS were bought to open. Accordingly, the call buyer needs the SPDR Gold Trust to advance beyond $172.30 (the strike price, plus the $2.30 premium he paid at initiation) by January 2015 options expiration. Yet, even if the shares stall short of the strike, the most this option bull has at stake is the initial cash outlay.
Yesterday's headline trader broke with what we've been observing in GLD's options pits of late. Based on information from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity features a 10-day put/call volume ratio of 0.98 -- meaning puts and calls have been bought to open at about the same rate through the past two weeks. Nevertheless, the ratio ranks in the 80th percentile of its annual range, pointing to a stronger-than-usual preference for long puts over calls.
As a result, the SPDR Gold Trust's (ETF) (NYSEARCA:GLD) Schaeffer's put/call open interest ratio (SOIR) sits at 0.65, which ranks higher than 81% of similar readings from the past 12 months. In other words, short-term traders have rarely been as inclined toward puts over calls during the past year as they are right now.