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Gold bugs bet big on the bullion rally

The recent rebound in bullion has not only brought smiles to gold bugs, it's also brought out the bulls in the options pits.

Geopolitical turmoil and wild currency moves have traders running for the safety of gold. Since the start of the year, gold is up more than 8 percent, the best start to a year since 2008, and it's in the midst of its best seven-day stretch since 2007. That rally has set off a flurry of bullish bets in the derivatives market as well. In fact in the past month, the number of call contacts that have been opened and not closed on the GLD, the ETF that tracts gold, has jumped 20 percent to 1.7 million contracts. And the enthusiasm shows little sign of waning.

Read MoreGold hits 4-1/2-month high on worries over Europe

"Options activity has been highly elevated in the GLD," CNBC contributor Michael Khouw said Friday on"Options Action." Khouw noted that a number of traders bought the April 145-strike calls for 60 cents on Friday, a bet that the GLD will rise approximately 18 percent to $145.60 by April expiration. "Until we develop the 'gas, guns, and grains' index, gold represents the ultimate fear trade," Khouw said.

Sterne Agee's chief market technician Carter Worth also sees more room to run in gold. "I think what's important is that as the dollar has appreciated and appreciated and other commodities have [broken down] gold has not budged in the past year. It has held in there," said Worth. "Of course, it's come to life in an aggressive sort of way."

Read MoreWhy 2015 will be the year for gold: Top analyst

How much higher? Worth pointed to gold priced in foreign currencies for clarity.

"One 'tell' as to where gold likely is headed can be gleaned from examining the chart of gold bullion denominated in euros rather than U.S. dollars," he said. "Gold in euros breached its down trendline three months ago," he added. "The message is the same when one looks at gold in Swiss francs and denominated in British pounds."

Technicians often look for breaks in trendlines as confirmation for a move in a particular direction.

Said Worth: "Early momentum usually begets further momentum and the presumption is meaningfully higher prices."

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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