SPDR Gold Shares Options (GLD): Unusual Trading Activity
Options in the SPDR Gold Shares (GLD) almost broke our tracking system Friday. The amount of activity in this name was monumental.
I normally don’t point out options trades that have occurred in the past, but this activity was too large to ignore.
You see, gold prices increased a staggering $60 per ounce on Friday. The yellow metal shot higher as scared investors went looking for an old fashioned safe haven.
However, make no mistake, GLD is still in a down trend.
Of course, there are option traders who don’t feel the same way. And this was made readily apparent by an enormous trade that came through on Friday afternoon.
Two traders came in minutes apart and purchased the GLD July $157-$172 call spread.
They bought the GLD July $157 calls for $4.10 a share. And immediately after these trades, they sold an equal amount of the GLD July $172 call options for $2.05 a share.
But here’s the really interesting thing…
The traders purchased close to 30,000 contracts between the two of them.
These trades are clearly no mere inexpensive speculative plays on gold. Trades of this magnitude signal an actual play on GLD skyrocketing very soon.
The trades cost a total of $7,175,000.
Best of all, if these traders are correct in their thesis, they stand to make a tidy fortune. The potential profit on a call spread is calculated by taking the difference between the strikes and subtracting the amount paid for the spread.
In this case, $14.00 – $2.05 = a potential profit of $11.95 per spread.
So, if GLD trades at the $172 level by July expiration, these traders will be flying home in their private jets with a spectacular profit of $45,325,000!
I can’t say anything about that other than… “WOW!”
That’s a long way to the upside in a very short period of time.
Historically, as the market moves lower, gold prices usually move higher. However, this has not been the case over the past few weeks.
Last Friday was merely an anomaly.
I think we’re stuck in no man’s land right now. And as the broad commodity market continues to slump, gold prices will follow suit.
As a result, I’m not in total agreement with this call spread.
GLD’s surge on Friday was most likely due to traders covering their short positions along with some bottom fishing. It shouldn’t be viewed as a reversal in gold.
We’ll see how this works out, but I’m going to stay away.
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
