How the big money is betting on gold now

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Major action in gold

Options traders are betting big on gold. Three massive trades in the gold ETF executed over the past three weeks imply a belief that gold will rise by 5 to 7 percent by the end of the year.

Of all the options currently trading in the SPDR Gold Trust (GLD), the most active is the December 130-strike call, with nearly 66,000 contracts currently open on the name. The volume came almost entirely on three days—Jan. 31, when 24,000 of these calls were traded, the subsequent trading day, Feb. 3, when 21,500 more calls were traded, and this past Thursday, when volume topped 20,000.

Since buying a call gives an investor the right, but not the obligation, to buy shares of a stock or ETF at a given strike price, these purchases will make money if the gold ETF is above $130 by more than the cost of the calls at December expiration.

That means that at a price of $6.75, which is where the December 130-strike calls were trading on Thursday, the trade will only be profitable if the GLD rises from $127.40 to $136.75, which implies a gold price of about $1,425.

(Read more: Now that gold touched $1,300, here's what's next)

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