Gold Options Bets Pour In as Stock Market Drops

Gold ETFs and mining stocks are higher today

by Karee Venema

Published on May 31, 2019 at 2:45 PM
Updated on Jun 5, 2019 at 11:09 AM

Another sharp sell-off in the U.S. stock market is boosting gold prices as traders seek safe-haven assets. This has sparked heavy options trading among several gold exchange-trade funds (ETFs) and mining stocks, including the VanEck Vectors Gold Miners ETF (GDX), the SPDR Gold Trust (GLD), and Newmont Goldcorp Corp (NYSE:NEM). Here's a closer look at how options traders are placing their bets.

GDX Rallies Into Key Trendline

GDX has seen 85,000 calls and 30,350 puts change hands today, almost three times what's typically seen at this point and total options volume pacing in the elevated 94th annual percentile. The fund topped out earlier at $21.74 -- home to its 80-day moving average -- and it looks like speculators could be betting on this region to serve as a ceiling over the next several weeks.

Specifically, the June 22 call is most active, and the bulk of the action has occurred on the bid side. With implied volatility on the rise, speculators may be selling to open positions here. Longer-term traders, meanwhile, appear to be buying to open GDX October 20 puts.

GLD Options Traders Eye a Quick Retreat

GLD is up 1.2% to trade at $123.20, pacing for its highest close since mid-April. In the fund's options pits, roughly 87,300 calls and 65,300 puts are on the tape, double the expected intraday amount. The August 127 call has seen the most activity, though it's not clear if positions are being opened or closed here.

It does seem that speculators are purchasing new positions at the weekly 6/7 122.50-strike put for a volume weighted average price of $0.40. If this is the case, breakeven for the put buyers at the close next Friday, June 7 -- when the weekly series expires -- is $122.10 (strike less premium paid).

Newmont Goldcorp Trader Sets a Short-Term Ceiling

Newmont Goldcorp stock is up 3.6% at $33.23, set for back-to-back closes above its 200-day moving average -- a feat not accomplished since mid-April. One trader today appears to be betting on the gold stock to stall near current levels.

Amid accelerated activity -- the 16,000 contracts traded so far is about two times the average daily volume -- one speculator appears to have sold to open 5,000 June 33 calls for $0.585 apiece. If this is the case, the call writer gets to pocket the initial net credit of $292,500 (number of contracts * premium collected * 100 shares per contract) if NEM settles at or below the strike at June options expiration, while losses are theoretically unlimited on a sharp move to the upside.

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