Options Traders Bet the SPDR Gold Trust ETF (GLD) Won't Lose Its Luster

The SPDR Gold Trust ETF (GLD) has been underperforming lately, but its options pits remain full of optimism

Oct 4, 2016 at 10:44 AM
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Gold is getting crushed today -- falling to a three-month low earlier, breaching the key $1,300-per-ounce level, and on track for a fourth consecutive daily loss. As a result, the SPDR Gold Trust ETF (GLD) was last seen 2.1% lower at $122.74, and bullish options traders could be feeling the pain.

Yesterday, for example, 82% of GLD's options volume transpired on the call side of the aisle -- including a number of bullish spreads in the November and December series, according to Trade-Alert. Today, call options are crossing at double the expected intraday rate, easily outpacing puts.

Widening the sentiment scope, it's clear that this is more of the same for the exchange-traded fund (ETF), based on data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the past 10 sessions, traders have bought to open nearly four GLD calls for each put. The resultant call/put volume ratio of 3.88 ranks in the bullishly skewed 94th annual percentile. What's more, GLD's Schaeffer's put/call open interest ratio (SOIR) is docked at an annual low of 0.25, with short-term calls quadrupling puts.

On a related note, the Street has been extremely optimistic toward the malleable metal itself. Data from the U.S. Commodity Futures and Trading Commission (CFTC) shows net long positions on gold are approaching all-time highs. This, despite the metal's recent struggles amid renewed calls for a U.S. interest rate hike and a relatively strong dollar.

Taken as a whole, this is far from an ideal setup for the SPDR Gold Trust ETF (GLD), which could follow gold south on a potential Fed decision to raise interest rates. As it is, the ETF has already pulled back 6.4% from its early July highs. Plus, with expectations sky-high both in and out of the options pits, an unwinding of optimism among gold bugs could create powerful headwinds.

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