Options Trading News

February 14, 2013  Thu 4:47 AM CT

A large trader apparently thinks that it's a great time to get long gold.

optionMONSTER's Heat Seeker tracking program detected the purchase of 11,000 May 172 calls in the SPDR Gold Shares fund for $0.79 and the sale of an equal number of May 188 calls for $0.14. Volume was more than 29 times the previous open interest at each strike, indicating that new money was at work.

Known as a bullish call spread, the trade is a highly leveraged strategy that will earn huge profits--but only if the fund retraces its selloff of the last six months and rallies back to new 52-week highs. With the GLD now at support levels from last summer, the transaction reflects a belief that bullion is getting ready to rally. (See our Education section)

It cost $0.65 to open the trade, which will expand to $16 if the fund closes at or above $188 on expiration--a profit of 2,362 percent. (See our Education section for more on how options can be used to amplify moves in shares prices.)

The GLD fell 0.53 percent to $159.05 yesterday and has been consolidating in its current range for the last 18 months. If the current level holds, it would represent a higher low from 2012's trough, which some chart watchers may consider evidence that the long-term uptrend remains in effect.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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