Bargain-Hunting Options Buyers Bear Down On SPDR Gold Trust ETF (GLD)

SPDR Gold Trust ETF's (GLD) short-term options are pricing in low volatility expectations

Aug 26, 2016 at 1:30 PM
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Similar to the broader stock market, gold has been seen on both sides of breakeven today, after Fed Chair Janet Yellen's Jackson Hole, Wyoming, speech hinted that the case for raising interest rates is building. Mirroring this price action is the SPDR Gold Trust ETF (GLD), which was last seen up 0.2% at $126.49, after being in the red earlier. Meanwhile, in the options pits, volume is running at almost two times the average intraday rate, with puts and calls trading in near parity.

On the put side, the September 123 and 125 strikes have received notable attention, due to a possible bearish roll. As Trade-Alert suggests, it looks like one speculator may be selling to close a 10,000-contract block of the higher-strike puts and buying to open a block of 20,000 lower-strike puts to bet on additional losses for GLD through front-month options expiration at the close on Friday, Sept. 16. While this time frame excludes the Fed's September policy-setting meeting, it does include next Friday's big jobs report.

Meanwhile, GLD's October 134 call has seen the most action today, with 20,413 contracts on the tape at last check. According to the International Securities Exchange (ISE), it looks like a fresh block of 15,000 back-month calls were purchased earlier for an initial cash outlay of about $1.7 million (number of contracts * $1.10 premium paid * 100 shares per contract).

This net debit represents the maximum risk on the trade, should GLD settle south of $134 at the close on Friday, Oct. 21 -- when the options expire. Profit, on the other hand, will accumulate should the ETF rally north of breakeven at $135.10 (strike plus premium paid). As a point of reference, GLD hasn't traded north of here since September 2013.

More broadly speaking, it's been put buyers who have dominated in GLD's options pits. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the ETF's 10-day put/call volume ratio of 1.20 ranks higher than all other comparable readings taken in the past year.

Whether this is reflective of a traditional bearish outlook or more of a protective put strategy, now appears to be an opportune time to purchase premium on GLD's near-term options. Specifically, SPDR Gold Trust ETF's (GLD) Schaeffer's Volatility Index (SVI) of 15% ranks lower than 78% of all comparable readings taken in the past year, meaning the options market is pricing in low volatility expectations.

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