Big Printin’ – GLD, XLI & XOP

by Dan April 12, 2016 3:40 pm • Commentary

Here are a few long premium directional options trades that caught my eye in today’s trading:

GLD – since the Gold’s ramp off of 52 week lows in mid December to new 52 week highs in mid February, the etf that tracks the shiny metal has been fairly range bound, between $115 and $122:

From Bloomberg
From Bloomberg

Call option volumes ran hot today with calls nearly three times that of puts with one trader making a fairly short dated speculative trade that GLD gets above $130 in the coming month (or could be a hedge against a short position!).  When the etf was $120 shortly before noon, there was a buyer of 20,000 of the May 130/138 call spreads, paying 38 cents. This trade breaks-even at $130.38 on May expiration, up nearly 9%.

While it is impossible to tell if this trader is levering up an existing long, or disaster hedging a short, I would add that either way this trade has a very low probability of being in the money, as the May 130 call has only a 13 delta, the options market is placing less than a 13% chance these calls are in the money on May expiration.

Lastly, I would note that open interest in GLD is very heavily weighted towards calls, with 2.75 million contracts of open interest vs puts at just 965,000.  The top 15 strikes of open interest are all calls, with the three largest: 124,000 of Sept 125 calls, 88,000 of the May 125 calls and 86,000 of the June 125 calls.

XLI – the etf that tracks the industrial sector saw a decent sized bullish roll when it was trading $55.25 shortly before noon. A trader sold to close 38,000 of the April 55.50 calls at 20 cents and bought to open 25,000 of the May 6th weekly 56 calls for 48 cents to open. The roll likely is an attempt by the trader to capture the 5 largest (GE, HON, BA, MMM & UTX) holding’s (which make up a third of the weight of the etf) Q1 earnings event.

The one year chart of the XLI is approaching a breakout level, very near the break-even of the calls purchased today:

XLI 1yr chart from Bloomberg
XLI 1yr chart from Bloomberg

XOP – lastly in the etf that tracks oil and gas stocks, up nearly 7% on the day, touching its 200 day moving average for the first time since September 2014:

XOP 2yr chart from Bloomberg
XOP 2yr chart from Bloomberg

Despite today’s strength in crude oil and oil related stocks in front of this weekend’s OPEC meeting, one trader is looking to possibly fade the move. When the XOP was $33.46 a trader bought to open 25,000 of the 32.50 puts for 72 cents, and bought 875,000 shares of stock. This could be a bearish position where the trader was replacing a short with puts, or wiggled out of the stock after the trade, or possibly the trader taking a view on vol.