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SPDR Gold Trust (ETF) (GLD) Bugs Bet On a Bullish End to the Week

GLD's weekly 7/26 130-strike calls are in focus today

by 7/22/2013 12:22 PM
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Gold is soaring today, amid reports that hedge funds increased their bullish exposure to the malleable metal. Today's move to the upside has the commodity on pace to finish north of the round-number $1,300 mark for the first time since June 19. As such, the SPDR Gold Trust (ETF) (NYSEARCA:GLD) was last seen 2.8% higher to trade at $128.60. The positive price action has one group of speculators targeting the weekly 7/26 130-strike calls, as they bet on additional gains through week's end.

Jumping right in... A healthy portion of the 3,712 contracts that have traded at this out-of-the-money strike have done so on the ask side, implied volatility has jumped 4.3 percentage points, and volume is outstripping open interest, pointing to buy-to-open activity. Based on the volume-weighted average price (VWAP) of $0.45, traders expect GLD to land north of $130.45 (strike price plus the VWAP) by the close on Friday. Coincidentally, the last time the ETF traded above this breakeven mark on an intraday basis was June 19. The options market isn't too confident the call will make its way into the money ahead of expiration, however, as delta for the position is currently docked at 0.33, or 33%.

Similar to the sentiment backdrop for fellow commodity basket the iShares Silver Trust (ETF) (NYSEARCA:SLV), calls have been status quo in GLD's options pits. During the course of the past 20 sessions, specifically, traders have bought to open 291,012 calls, compared to 191,543 puts, resulting in a call/put volume ratio of 1.52. Additionally, the stock's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) rests at 0.66. In simpler terms, near-the-money call open interest outweighs put open interest among options expiring in three months or less.

On the charts, the ETF has fallen in step with the rest of the precious metals market, losing nearly 21% year-to-date. This downward spiral has been highlighted by GLD's 40-day moving average, which has been ushering the ETF lower for the greater part of the last nine months. Thanks to the recent bounce, though, GLD is on track to notch its first daily close north of this trendline since Feb. 6.

Should the SPDR Gold Trust (ETF) (NYSEARCA:GLD) be unable to sustain this momentum through week's end, and fall short of toppling $130, the most today's call buyers stand to lose is the initial premium paid.


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