Gold futures were significantly lower this morning, as a Bernanke-fueled rise in the greenback
weighed on the dollar-denominated commodity. In a similar fashion, the SPDR Gold Trust ETF
(NYSEARCA:GLD) plummeted 4.4% to a new two-year low of $124.86, with a few well-timed option bets starting to come to fruition.
During the course of Wednesday's session, the exchange-traded fund saw roughly 109,000 put options change hands -- a 22% mark-up to its average daily volume. The January 2014 125-strike put saw the biggest overnight increase in open interest, with nearly 4,000 contracts added. What's more, 97% of the LEAPS traded on the ask side, at a volume-weighted average price (VWAP) of $4.55, suggesting they were bought.
In order to reap a reward, the buyers need the SPDR Gold Trust ETF to breach $120.45 (strike price minus VWAP) by January 2014 options expiration. From current levels, it would take a drop of 3.5% in order to hit breakeven. Risk, meanwhile, is limited to the initial premium paid for the puts, which now sport a delta of negative 0.47. In other words, the options will gain $0.47 in value for every 1-point move lower in GLD.
Expanding our sentiment scope, we find that the pessimism plaguing GLD isn't limited to long-term traders. The Schaeffer's put/call open interest ratio (SOIR)
for the ETF stands at 0.78 -- just 2 percentage points from a 52-week high. Or, in simpler terms, near-term options traders have rarely been more put-heavy during the past year.
This article by Andrea Kramer was originally published on Schaeffer's Investment Research.
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