Option volume lit up yesterday in the SPDR Gold Shares exchange-traded fund, which tracks the price of bullion.
The October 162 calls stood out on our Heat Seeker tracking system, with plenty of buying for $3.31. More than 26,000 of the contracts traded against open interest of 609 contracts, and the GLD jumped quickly after that big block of options moved.
Calls lock in the price investors must pay to buy shares in the fund, so they can generate some nice leverage in the event of a rally. But those options can also expire worthless if the stock doesn't move. (See our Education section)
Other traders yesterday sold calls, apparently to generate income while holding long positions. That fixes their exit price and limits profit while helping to manage risk.
The GLD rose 1.40 percent to $155.67 yesterday. The call activity pushed total option volume in the fund past 260,000 contracts, compared with average turnover of about 68,000 a day. Calls outnumbered puts by 3 to 1, a reflection of the bullish sentiment.
(A version of this post appeared on InsideOptions Pro yesterday.)
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