Budget battle brings out gold bulls
David Russell | [email protected]
optionMONSTER's Heat Seeker monitoring system detected the purchase of 10,000 December 132 calls in the SPDR Gold Shares exchange-traded fund for an average premium $3.125. Equal-sized blocks were sold in the December 124 puts for $3.27 and the December 138 calls for $1.47. Volume exceeded open interest at all three strikes, indicating that new positions were initiated.
The trader collected a net credit of $1.62 and stands to gain $6 if the GLD closes at or above $138 on expiration. He or she is also on the hook to buy shares for $124 if it closes below that level on expiration, so there is downside risk.
The GLD, which represents about one-tenth of a bullion ounce, is down 0.29 percent to $128.60 in afternoon trading. The fund declined steadily between October 2012 and last June but has been working its way higher since.
Republicans and Democrats are locking horns over the federal budget, which must be approved by tomorrow to avert a government shutdown. They also face a second battle later in October, when they'll have to raise the country's debt ceiling or risk leaving the Treasury Department unable to make payments.
Gold has traditionally been a hedge against political risk, a view that today's investor is apparently adopting. The strategy lets him or her benefit from an immediate rally while programming a buy order at lower prices if it drops. (See our Education section for more on the trade, which combines short puts with a vertical call spread.)