Calls lock in the price investors must pay to buy shares in the fund, so they can generate some nice leverage in the event of a rally, but those options can also expire worthless if the stock doesn’t move.
Other traders yesterday sold calls, apparently to generate income while holding long positions. That fixes their exit price and limits profit while helping to manage risk.
The ETF rose 1.40 percent to $155.67 yesterday. The call activity pushed total option volume in the fund past 260,000 contracts, compared with average turnover of about 68,000 a day. Calls outnumbered puts by 3 to 1, a reflection of the bullish sentiment.
—By CNBC Contributor Pete Najarian
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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC’s “Fast Money” and co-founder of OptionMonster.com. Najarian has no positions in GLD.