Unusual Options Activity In SPDR Gold Shares ETF (GLD)

| February 9, 2015 | 0 Comments

Unusual Trading VolumeUnusual Options Activity In SPDR Gold Shares ETF (GLD)

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason… Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

SPDR Gold Shares ETF (GLD) is the most popular and most heavily traded gold ETF out there. It trades over 8 million shares a day on average. Check here for more info on the fund.

GLD is up 7% on the year so far. The current share price of $118.75 is 11% from the 52-week high of $133.69 and 8% above the 52-week low of $109.67.

So what does unusual options activity in GLD tell us?

Gold has been back in the headlines this year as interest rates are expected to remain ultra-low for the foreseeable future. This forecast has been supported by the ECB’s massive entry into unconventional monetary policy. What’s more, volatility in the currency markets has also pushed some currency investors into precious metals.

Essentially, low rates tend to result in lower currency values. Many major currencies around the globe are falling, with the exception of the US Dollar. However, for those not wanting to invest in the dollar (for various reasons), gold provides an alternative.

Here’s the deal…

Last week, 27,000 January 2016 140 calls in GLD were bought for $3.10 per contract. Keep in mind, a call option makes money when the stock goes up (prior to expiration).

The option buyer can lose $3.10 per option on this trade, which is a whopping $8.4 million total in this case. The breakeven point is $143.10, or 20% higher than the current price.

The reason this particular trade is so expensive is because of time value. The buyer bought nearly a year’s worth of time on this trade – hence the over $3 price per option even though breakeven is 20% higher.

The investor is obviously very bullish on gold, although he or she believes it’s going to take quite some time for the thesis to play out. Perhaps the buyer believes the currency markets will continue to unravel this year, or the USD is going to get hit at some point.

Here’s the chart of GLD:

unusual option activity, a chart of GLD

As you can see from the chart, GLD has fallen back to the 50-day moving average after peaking in mid-January. The price of gold could go either way from here, however, the short-term isn’t going to be all that important to this long-term option buyer.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.


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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.