The Nearly $1 Million Bullish Bet On Gold

SPDR Gold Trust (GLD) has been struggling along with gold prices, amid the revived Trump rally

Jan 27, 2017 at 12:21 PM
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Gold prices have been slipping, as the revived Trump rally keeps equities hovering near record highs. The SPDR Gold Trust ETF (GLD), for instance, has shed 1.7% week-to-date, last seen at $113.13, paring its year-over-year lead to 6.2% following a roller-coaster ride in the past 12 months. The exchange-traded fund (ETF) fell off sharply after election day in the U.S., and, since finding a floor in the $106 region in mid-December, has attempted to muscle back. But the rebound was recently halted just shy of the $116 mark, which corresponds with GLD's declining 80-day moving average -- a trendline that sent the shares abruptly higher in June. Still, at least one options trader is betting on a notable recovery in the coming months.

GLD Daily Chart January 27

According to Trade-Alert, one speculator Thursday initiated a long call spread by buying to open 25,000 April 125 calls for $0.46 apiece, while simultaneously selling to open the same number of April 140 calls for $0.08 each. This resulted in an initial cash outlay of $950,000 (number of contracts * $0.38 net premium paid * 100 shares per contract). The goal is for GLD to rally beyond breakeven at $125.38 (bought strike plus net debit) -- which the ETF hasn't seen since early October -- by April options expiration, a time frame that includes two Fed meetings. Regardless of how high GLD should rally, though, gains are capped due to the sold call.

SPDR Gold Trust ETF (GLD) is no stranger to call action. After all, nine of the 10 highest open interest positions are calls, with the top four spots belonging to deep out-of-the-money strikes in the March and January 2018 series. Given these strikes reside so far above GLD's current price, it's possible some of the activity here could be of the hedging kind -- especially as demand for gold increases among large speculators.

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