Option Bulls Won't Give Up on Struggling SPDR Gold Trust ETF (GLD)

SPDR Gold Trust ETF (GLD) calls have been extremely popular in recent weeks

Josh Selway

Nov 23, 2016 at 2:48 PM

While the broader equity market continues its post-election rally, gold prices have fallen dramatically. For instance, the SPDR Gold Trust ETF (GLD) has given back 2% to trade at $113.28, on pace for its lowest close since Feb. 5. The exchange-traded fund (ETF) has now lost nearly 7% of its value since its pre-election close, and GLD options volume has been picking up in a big way.

In today's trade, both calls and puts are changing hands at roughly three times the pace normally seen at this point in the day. On the call side of the aisle, much of the action has centered around the January 125 and 130 calls, due to one trader possibly closing a large call spread, according to Trade-Alert. Elsewhere, it appears some traders may be selling to open the weekly 11/25 113.50-strike call, betting on GLD holding below this level through the end of this week.

While calls have the edge on an absolute basis, GLD put volume is currently on pace to set an annual high. Among the most popular puts today are the December 105, 108, and 110 strikes. Meanwhile, the longer-term June 2017 108-strike put is also among the options seeing heavy trading volume.

GLD long calls have been hot for weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals a 50-day call/put volume ratio of 2.40, meaning more than two calls have been bought to open for every put. Plus, this ratio tops 77% of all readings from the past year. Bullish options traders may be hoping for a short-term bounce, with GLD's 14-day Relative Strength Index (RSI) coming in at 24, meaning it's been oversold.

No matter if it's calls or puts, now appears to be a good time to buy premium on GLD options. This is according to the stock's Schaeffer's Volatility Index (SVI) of 14%, which ranks in the low 16th annual percentile. Put simply, the options market is pricing in relatively low volatility expectations at the moment.

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