A trader sold almost 116,000 in-the-money SPDR Gold Shares (GLD) calls on Monday and used part of the proceeds to buy the same number of higher-strike calls, pocketing a $58 million net credit that only pays off if gold pulls back. The bet stands out against a month in which gold has rallied 15% and most other options flow still leans bullish.
A $58 million bet that gold cools off
Someone sold almost 116,000 GLD calls with a 420 strike expiring Sept. 18 twenty minutes after Monday's open, collecting $202 million in premium. The trader then used part of that money to buy the same number of 430-strike calls for $144 million, creating a $58 million net credit.
Selling in-the-money calls pushes the trade's breakeven to $425, the midpoint between the two strikes. With GLD trading at $427, the position needs gold to retreat slightly over the next four weeks to pay off.
Smart money turns cautious
Nigam Arora, founder of the Arora Report, said momentum-crowd flows remain bullish but that smart-money flows have shifted: "Momentum-crowd flows remain very bullish but smart-money flows have turned negative." He pointed to about $60 million of negative net money flow in GLD on the day.
Yet this trade runs counter to most other options activity in GLD, which has leaned bullish for several weeks. Traders likely bought more than 37,000 calls versus fewer than 20,000 puts Monday, according to ThinkOrSwim data, and 13 of the top 15 contracts by volume were calls, SpotGamma data show. GLD volume ran close to five times its 30-day average, largely because of the spread, Cboe LiveVol data show.
A risk-heavy week ahead
The trade lands ahead of a week carrying PCE inflation data on Wednesday and the Jackson Hole Economic Symposium starting Thursday. Gold has kept rallying even as the 10-year yield tests multiyear highs and real rates climb, conditions that conventionally weigh on a nonyielding asset like gold.
Dollar weakness has coincided with the rally. The dollar index fell to 98.723 this week, its lowest level since May 14, as investors weighed a Treasury Department plan to expand debt-buyback operations, according to Investing.com. Whether that backdrop holds through Jackson Hole may decide if Monday's bearish options bet gets paid.
Sources: CNBC, Investing.com
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