Traders are betting big that gold is heading higher.
Yesterday OptionMonster’s tracking systems detected some large bullish plays in the SPDR Gold Shares Trustexchange-traded fund . Traders bought the November 180 calls and sold the November 210s for a net cost was $0.92. If the gold ETF reaches that $210 strike price, they stand to make $20 on that trade.
Buying calls locks in the purchase price of the shares, while selling them fixes the exit price. The strategy, known as a vertical spread in this case, controls a move between two stock prices at a tiny fraction of what it would cost buying the fund directly. Of course, the risk is that it doesn’t rally, in which case the options expire worthless.
The SPDR Gold ETF fell 0.86 percent to $155.14 yesterday, continuing to trade in a range in place for the last three months. Our systems detected some huge stock trades in addition to the option activity, including prints of 239,000 and 600,000 shares. Also yesterday, the fund’s daily holdings rose for the first time in more than a month.
They’re all looking for gold to go higher. So am I.
—By CNBC Contributor Jon Najarian
Additional News: Gold May Have Been Manipulated Like Libor: Expert
Additional Views: Option Bulls Drive Volume in Gold ETF
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Jon ‘DRJ’ Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com. Najarian is long GLD.
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