Option Bulls Place Big Bets On SPDR Gold Trust ETF (GLD)

A gold rally has option bulls circling GLD

by Andrea Kramer

Published on Feb 8, 2016 at 2:07 PM
Updated on Jun 24, 2020 at 10:16 AM

A mass flight to safety has gold futures flirting with multi-month highs. What's more, the SPDR Gold Trust ETF (GLD) has rallied 1.9% to $114.41 -- and is on pace to take out its 80-week moving average for the first time in more than a year -- and option bulls are betting on even more upside in the near term.

GLD calls are crossing the tape at three times the average intraday rate, and have outnumbered puts by a margin of more than 5-to-1. In fact, the intraday put/call volume ratio of 0.20 is near an annual low, and GLD call volume has topped its annual high from Jan. 26. Plus, GLD stock volume is also on pace to hit a 12-month high, surpassing the more than 18 million contracts exchanged on Aug. 24.

The overhead 117 strike is most popular, with potential buy-to-open action spotted at the February and April 117 calls. A 25,000-block of the front-month calls may have been purchased to open for 80 cents apiece -- or a cool $2 million total ($0.80 x 100 shares per contract x 25,000 contracts). By initiating the trade, the speculator's profit will increase the higher GLD climbs north of $117.80 (strike plus premium paid) by next Friday's close, when front-month options expire.

Likewise, according to Trade-Alert, an investor bought to open 15,000 April 117 calls for $2.62 apiece -- or $3.93 million -- and will make money if GLD rallies north of $119.62 by the close on Friday, April 15. GLD hasn't traveled atop $119 in about a year. 

However, today's appetite for long GLD calls is just more of the same. The ETF's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 4.02 -- higher than 99% of all other readings from the past year.

What's more, GLD's short-term options are fetching a relatively pretty penny. The ETF's 30-day at-the-money implied volatility is up 9.9% at an annual high of 19.5%, and its Schaeffer's Volatility Index (SVI) of 18% stands in the 76th percentile of its annual range.

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