Options Bets Pour in on Gold ETF GLD

One trader expects GLD to trade above $130 by January

by Josh Selway

Published on Aug 18, 2017 at 12:18 PM
Updated on Aug 18, 2017 at 12:20 PM

Due to increasing worries surrounding President Donald Trump, fear has found its way back into U.S. markets, weighing down stock prices and boosting stock market volatility. As a result, there appears to be increasing demand for safe-haven assets like gold, with gold futures just topping $1,300 per ounce for the first time in 2017. In fact, according to BofA-Merrill Lynch (BAML) data, precious metals just saw their largest inflows in 10 weeks. In the meantime, options traders have been targeting gold exchange-traded fund (ETF) SPDR Gold Trust (GLD)

GLD call options have been popular in recent weeks, with the ETF's 10-day put/call volume ratio of 2.07 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranking above 70% of all other readings from the past year. This trend is continuing today, with call volume outpacing put volume 51,000 to 36,000.

Two of the most popular options today are the January 130 calls and the January 115 puts, due to two identical blocks of 5,000 contracts that crossed this morning. It appears one trader sold to open the puts for 82 cents each to help fund their purchase of the calls, which had an ask price of $2.02 each. As such, this trader paid $600,000 (price paid for the calls minus premium collected from the puts) to bet on the gold ETF rising to $130 before the options expire in January. GLD hasn't traded at this level in over a year. 

Elsewhere, buy-to-open activity has also been detected at the weekly 8/25 125-strike call, suggesting bulls are betting on an even higher run from the fund through next Friday's close, when the contracts expire. Not everyone's a believer, however, as a number of long positions have been opened at the weekly 8/25 120.50- and 121-strike puts, as well. 

Either way, it's a good time to buy GLD options. The fund has a Schaeffer's Volatility Index (SVI) of 12%, which ranks in the low 19th annual percentile. This means near-term volatility expectations for near-term options are unusually muted at the moment. Plus, its Schaeffer's Volatility Scorecard (SVS) stands at an elevated reading of 90, revealing the ETF has shown a tendency to make bigger-than-expected moves over the past year. 

SPDR Gold Trust (GLD) was last seen 0.2% higher at $122.70. Since hitting a July 7 low of $114.80, the ETF has jumped close to 7%, and earlier hit its highest point since the Nov. 8 presidential election, at $123.54. 

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