Markets

Huge gold trade sees upside in 2012

One big investor is positioning for gold to recover in the New Year.

optionMONSTER's Heat Seeker tracking program detected the purchase of 25,000 February 175 calls on the SPDR Gold Shares exchange-traded fund for $0.75. An equal number of January 160 calls were sold at the same time for $2.10, but volume was below open interest in that strike.

The GLD activity suggests that the trader owned the January calls and is rolling the position to the February 175s. The move lets him or her collect $1.35, while maintaining exposure to upside in the fund, which represents about one-tenth of an ounce of physical gold.

The move protects the trader from the accelerating pace of time decay that will erode the value of the January calls as expiration approaches in five weeks. It keeps them in the trade for an additional month in case gold rips higher in late January or early February. (See our Education section)

The GLD rose 0.11 percent to $157.16 yesterday. It's been steadily trending higher for years, but has recently paused and is down about 9 percent in the last three months.

Calls outnumbered puts in GLD by a bullish 2-to-1 ratio in the session, according to the Heat Seeker.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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