Gold is apparently back as a “safety” trade after struggling for the last three months, and its largest exchange-traded fund attracted a large bullish play on Friday.
The SPDR Gold Shares Trust ETF gained 3.88 percent to $157.50 as stocks plunged. The market selloff followed the first rise in the nation’s unemployment rate in 11 months, which raised fears that the economy may be worsening.
A trader bought 13,000 July 157 calls for $4.85, while selling the same number of July 172 calls $1.05, according to OptionMonster’s real-time tracking systems. The open interest at those strikes was just 251 and 659, respectively, at the beginning of the session, so this is clearly new activity.
The trader is selling the higher-strike calls to offset the cost of the those bought, paying a net $3.80 to open this bullish call spread. That means he or she can make money from the July 157 long calls if the ETF rises by expiration, but will not profit from gains above $172.
Total option volume in the SPDR Gold Shares Trust ETF on Friday was more than 3.5 times higher than its daily average for the last month. Calls at all strikes outnumbered puts by more than 3 to 1.
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Jon ‘DRJ’ Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com. Najarian owns call spreads in GLD.