Market News

December 8, 2016  Thu 12:37 PM CT

A large trade is positioning for the SPDR Gold Trust to continue its downtrend through the end of this week.

Because precious metals are traditionallly viewed as safe havens, traders often purchase gold and its miners when they believe that stocks will fall. Last Friday, for example the GLD saw huge call buying ahead of the Italy's constitutional referendum and this morning's press conference by the European Central Bank--high-profile events that raised concerns of a market selloff. But neither of these developments has deterred the blistering post-market rally, and today our systems detected a large vertical spread in the fund:

  • 19,000 Weekly 111 puts expiring at the end of tomorrow's session were purchased for $0.21 against open interest of 3,593 contracts.
  • 19,000 Weekly 110 puts in the same expiration were sold for $0.05 against open interest of 4,848 contracts.

This vertical spread is looking for GLD to fall below $111 by expiration at the end of tomorrow's session. The sale of the higher-strike contracts reduces the cost of the long puts but will require the trader to purchase shares if they drop below $110. Long puts lock in the price where a stock can be sold, so they make money to the downside. Investors use them to hedge stock positions or to speculate on a decline. (See our Education section)

GLD is down 0.29 percent to $111.50 in afternoon trading and has fallen 12 percent in the last three months. Overall option volume in the fund is about average so far today, with puts outpacing calls by narrow margin.

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