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One speculative player is betting on gold prices to rebound over the long haul, judging by a massive call spread on the SPDR Gold Trust (ETF) (NYSEARCA:GLD) that crossed the tape on Thursday. Shortly after 2 p.m. Eastern, the trader initiated a long call spread on GLD using a pair of January 2015 LEAPS, with the strategy poised to profit on a rise by the exchange-traded fund (ETF) above $142.
Specifically, the options player bought a block of 17,300 January 2015 135-strike calls for the ask price of $13.40, and simultaneously sold 17,300 January 2015 155-strike calls near the bid price at $6.40. Since open interest at both strikes rose overnight by more than 17,000 contracts apiece, it's safe to assume this was a newly opened long call spread, or bull call spread, on the SPDR Gold Trust ETF.
Subtracting the cost of the long calls from the premium received on the sale of the short calls, the trader entered the spread for a net debit of $7. Based on this entry price, GLD must rise above breakeven at $142 (purchased call strike plus net debit) before this spread player will begin to see profits. The best-case scenario would be a rally to $155 or above, which would reap the maximum gain of $13 (difference between strikes, less net debit). The ETF is currently hovering just below $136, but it has roughly 21 months to live up to this spread buyer's bullish expectations.
It's been an active week in the GLD option pits, triggered by massive volatility in gold prices. Generally speaking, however, calls have had the edge over puts lately. During the past five days, traders on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 114,851 calls on the SPDR Gold Trust, compared to 81,048 puts.
On the charts, GLD started the week with a drastic bearish gap, losing 8.8% amid Monday's historic plunge in gold prices. In early trading today, however, the shares have edged up about 1%.