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April 12, 2013  Fri 11:17 AM CT

GLD: SEE CHART GET CHAIN FIND STRATEGIES
As gold plunges to a 22-month low, one large trader sees even more volatility ahead.

optionMONSTER systems show that a trader bought 25,000 April 140 puts in the SPDR Gold Shares Fund for the ask price of $0.51. The volume is more than double the previous open interest in the strike, clearly showing that this is a new position.

Less than a minute later, a block of 450,000 shares of the GLD was bought for $145.90. The combination of stock and options creates a delta-neutral trade that is betting on higher volatility in the shares and/or a sharp move in either direction. (See our Education section)

The GLD is down 3.62 percent to $145.59 this afternoon, its lowest level since June 2011. Shares were trading at $174 in early October. 
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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