SPDR Gold Trust ETF (GLD) Call Volume Spikes to Multi-Year Extreme

SPDR Gold Trust ETF (GLD) calls had their biggest-volume day since April 2013 on Tuesday

by Karee Venema

Published on Jan 27, 2016 at 11:47 AM
Updated on Jun 24, 2020 at 10:16 AM

SPDR Gold Trust ETF (GLD) has been charting a path steadily higher since the Federal Reserve raised interest rates in mid-December. In fact, after bouncing from a six-year low near the century mark on Dec. 17 -- the session following the central bank's announcement -- GLD is up almost 7%. Following the Fed's 2004 rate hike, gold was down slightly one month out, but went on to post impressive returns over several monthly and yearly time frames.

Today, meanwhile, the shares are off 0.4% at $106.83, as caution sets in ahead of this afternoon's latest policy decision from the Federal Open Market Committee (FOMC). While expectations are high that the central bank will make no changes to its current monetary stance, traders will anxiously sift through the announcement looking for hints as to when another interest rate hike will be announced.

Option traders, it seems, have been preparing for more upside -- or perhaps hedging against it. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GLD's 10-day call/put volume ratio of 3.54 sits above all other readings taken in the past year. Simply stated, calls have been bought to open over puts at an annual-high clip.

According to Schaeffer's Quantitative Analyst Chris Prybal, the exchange-traded fund (ETF) saw the seventh-largest day of call volume on record yesterday. More specifically, it was the biggest volume day since April 15, 2013.

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Additionally, Prybal noted that GLD's call/put volume ratio of 21.1 on Tuesday was by far the largest bias toward calls since at least 2012. Per Trade-Alert, a significant amount of call volume may have been a result of a four-way transaction in which a speculator sold to close her positions in the March 113 and 114 strikes in order to fund the purchase of a March 108-117 long call spread. Open interest translations support this theory.

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Prybal also pointed out that, per the 10-day moving average of SPDR Gold Trust ETF's (GLD) 5% out-of-the-money put/call skew, implied volatilities (IVs) on the ETF's calls are now priced higher than its put IVs. While this is a rare condition that can often lead to subsequent weakness in price action, gold bugs can be encouraged by the commodity's historical post-Fed trajectory.

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