Yesterday we saw heavy put buying in TLT, the iShares Barclays 20+ Year Treasury Bond ETF, as 5,000 October 122 Puts traded on the ask for $2.52. This bearish activity follows the recent news that Bill Gross cut his Treasury bond holdingsto 21% from 33% of his Total Return Fund, the world's largest bond fund. The option trader is probably looking at the 2011 highs in TLT around $120 as a support point that will not hold after the Federal Reserve meeting concludes. If TLT continues to experience short-term weakness, this trader stands to profit from a fall below $119.48, as the next level of support looks to be somewhere near $115.
Yesterday we also noticed heavy call selling in GLD , the SPDR Gold ETF. 12,000 GLD September 161 calls were sold below the bid for 7.125, and 12,000 GLD September 166 calls were sold below the bid for $3.25. Price action in GLD will be sensitive to the outcome of the Fed meeting, and this trade appears to be from a trader positioning himself to profit from a "buy the rumor, sell the news" scenario. We remain long-term bullish on gold but this strategy is a great way to add income to a long gold holding, and picks a level that the trader wants to be out of gold. Given the recent run upward in gold, it is common to see such option trades as a way to hedge long positions in a commodity.
Brian Stutland is the President of Stutland Equities and a contributor for CNBC's "Options Action."
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