Direxion Daily Gold Miners Bulls 3X Shares (NUGT) Breakout Sparks Call Trading

Call options on the Direxion Daily Gold Miners Bulls 3X Shares (NUGT) are trading at quadruple the usual intraday pace

Oct 7, 2016 at 10:46 AM
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Call options are flying off the shelves on the Direxion Daily Gold Miners Bulls 3X Shares (NUGT), as the price of gold steadies after a volatile week -- including four consecutive daily losses. Specifically, the options are crossing the tape at quadruple the expected intraday clip, with 26,000 contracts on the tape, compared to fewer than 5,000 puts.

Accounting for more than half of the action on the call side of the aisle is the weekly 10/7 12 strike. In fact, the extremely short-term series, which expires at tonight's close, represents seven of the 10 most active options. Regarding NUGT's aforementioned 12-strike call, over 14,500 contracts are on the tape, with nearly two-thirds of the activity transpiring at the bid price, and volume outstripping open interest by a relatively slim margin.

Based on these considerations -- as well as some limited data from the International Securities Exchange (ISE) -- it appears at least some of the action is of the sell-to-close sort. Put simply, those closing the positions may be collecting paper profits ahead of expiration, spurred by this morning's big upside move for NUGT.

As alluded to, it's been a breakout session for NUGT -- though it remains on the short-sale restricted list, and has given up some of its earlier gains. As of last night's close, the exchange-traded fund (ETF) had surrendered 38% on the week amid the gold selloff. Today, however, NUGT shares bounced as much as 11.2%, and were last seen 3.4% higher at $12.10.

Lastly, call buyers have been bombarding the Direxion Daily Gold Miners Bulls 3X Shares (NUGT) of late, seemingly undeterred by its technical woes. The ETF's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is a top-heavy 3.02, with long calls tripling puts. What's more, this ratio ranks in the bullishly skewed 86th annual percentile.

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