What’s likely to be the largest trade in the options pits today was a bullish roll in the SPDR Gold etf (GLD). When the etf was $107, a trader sold to close 27,000 of the March 113 calls at 89 cents, and sold to close 47,000 March 114 calls at 75 cents, taking in a close to $6 million in premium.
It appeared the trader rolled this bullish view, but interestingly committing more premium that what was taken in from the roll, buying to open 75,000 of the March 108 / 117 call spreads for $1.80, or about $13.5 million in premium.
This trade breaks-even on March expiration at $109.80, with profits of up to $7.20 between $109.80 and $117, with max gain of $7.20 above that. This trader is risking $1.80 to potentially make 4x their money if the stock is up 8.5% in less than 2 months on March Expiration.
Taking a quick look at the one year chart of GLD, you can see that the break-even on the call spread that was purchased today is right about at the breakdown level from July and then again in November:
BUT, taking a slightly longer term view, from GLD’s all time highs in 2010, one can see the pronounced downtrend, specifically from mid 2013, as GLD has made a series of lower highs and lower lows, and any rally from these levels could cause the stock to run into the downtrend, and the prior support level of $115, causing said rally to be born into a grave, so to speak:
Oh and one last chart, which may help explain why the trader committed more capital to the bullish view, look at the differential between short dated implied volatility (blue line below, how much the etf is actually moving) and realized volatility (white line, how much the etf has actually been moving) and you see the fairly rare occurrence of the etf moving more than options prices are implying, making options look cheap for directional players:
As regular readers know I have few clues why gold moves one way of the other, I get the whole inflation thing, but there is none. I point out the trade because of its size, the re-commitment of capital and the interesting technical set up.