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Option Volume Briefs: Betting on Long-Term Upside in Gold

Market Vectors Gold Miners (GDX) ETF sees call buying, put selling

by 10/4/2012 2:09 PM
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With gold futures hitting an 11-month high and aiming for the $1,800-an-ounce level, gold bulls are taking definitive action on the Market Vectors Gold Miners ETF (NYSEARCA:GDX - 54.09). A large bullish play employing two options with different strikes and expiration dates hit the tape earlier today.

It looks as though investors bought 10,000 March 2013 62-strike calls for $1.88 per contract, which was above the ask price at the time. It also appears this same trader simultaneously sold a 10,000-conract block of the January 2013 52-strike puts for the bid price of $2.82.

Since the puts expire first, GDX will need to stay at or above the $52 level through January expiration for the trader to keep the premium collected as profit. At this point, the long call still has about two months of life left in it, and breakeven for this trade is $63.88 at expiration (the strike plus the debit paid). The maximum potential loss for a long call is the premium paid; for a short put, however risk is unlimited down to zero, should the underlying collapse.

While the GDX is 4% lower during the past 52 weeks, its recent trend has been toward the upside. Since late July, in fact, the ETF has appreciated by nearly 35%. In fact, the security ended last Friday above its 10-month moving average, the first monthly finish north of this trendline since last November.

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