Fed, North Korea Spur Demand for GLD Calls

Lowered expectations for a Fed rate hike and North Korea worries have increased gold bugs' appetite

Sep 7, 2017 at 1:53 PM
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Since skimming the $115 level in early July, the SPDR Gold Trust (GLD) has surged more than 11% to trade at $127.98. Boosting the exchange-traded fund (ETF) has been diminished expectations for a Fed rate hike by year's end, as well as rising geopolitical tensions with North Korea. Against this backdrop, there's been an extreme demand for GLD calls. In fact, the 10-day moving average for GLD's out-of-the-money put/call skew hit 0.80 on Aug. 23 -- its lowest reading on record, according to Schaeffer's Quantitative Analyst Chris Prybal -- and closed last night at 0.84.

Drilling down on the past two weeks' worth of activity, GLD's October 126 and 130 calls have seen the largest rise in open interest, with nearly 43,000 contracts collectively initiated. Data from the major options exchanges confirms significant buy-to-open activity at each, suggesting traders are eyeing an extended gold rally over the next two months.

That's not to say put traders have been absent on GLD, though. Put open interest is currently docked in the 96th annual percentile, with 1.2 million contracts open. Plus, GLD's Schaeffer's put/call open interest ratio (SOIR) of 0.57 is in the 100th annual percentile, meaning traders have rarely been more put-skewed toward options set to expire in three months or less. Peak put open interest of 39,776 contracts is found at the September 115 strike, though it's unclear whether they were bought or sold. 

Puts were popular yesterday, too, with GLD's single-session put/call volume ratio arriving at 1.2 -- its highest perch since June 1. Most of the action was centered at the weekly 10/13 124- and 125-strike puts, where it looks like several short put spreads may have been initiated. If this is the case, the credit spread strategist expects the ETF to stay above $125 through expiration at the close on Friday, Oct. 13.

This relative bullish positioning toward gold is found outside of the options arena, too. According to ETF.com, net inflows on GLD have totaled $1.9 billion since Aug. 1. Plus, the latest Commitments of Traders (CoT) report showed seven straight weeks of additions on the gold contract -- resulting in the longest positioning by large speculators since last October.

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