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SPDR Gold Trust (ETF) (GLD) Option Traders Hope for a Gold Turnaround

GLD fans are flocking to weekly call options

by 7/5/2013 12:10 PM
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A stronger-than-expected payrolls report is weighing on the price of gold, which is often viewed as a "safe haven" investment. As such, the SPDR Gold Trust (ETF) (NYSEARCA:GLD) is down 2.7% at $117.54, yet some options traders are rolling the dice on a near-term rebound for the exchange-traded fund.

The most active option not expiring today is GLD's weekly 7/12 120-strike call, which has seen more than 3,300 contracts change hands on open interest of fewer than 1,650 contracts, pointing to fresh initiations. What's more, the majority of the calls crossed at the ask price, suggesting they were bought.

By purchasing the calls at a volume-weighted average price (VWAP) of $0.76, the buyers will begin to profit if GLD muscles north of $120.76 (strike price plus VWAP) by the end of next week, when the contracts expire. Risk, on the other hand, is limited to the initial premium paid for the calls -- though that's nothing to balk at. The ETF's Schaeffer's Volatility Index (SVI) has escalated as demand for GLD options has surged, and now stands at 25%, in the 69th percentile of its annual range. In other words, GLD's near-term options are relatively pricey at the moment.

Meanwhile, despite gold's plummet, today's appetite for bullish bets is par for the course for the SPDR Gold Trust (ETF) (NYSEARCA:GLD). On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 1.60 stands higher than three-quarters of all other readings of the past year. Or, in simpler terms, option buyers have picked up GLD calls over puts at a faster-than-usual clip during the past two weeks.

That's not to say the bullish bandwagon is crowded, though. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.68 sits 12 percentage points from a 52-week peak, implying that near-term option traders are still more put-heavy than usual.


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