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Big spread bets on rebound in gold

Chris McKhann (chris.mckhann@optionmonster.com)

A huge long-term trade is looking for the SPDR Gold Shares Fund to rebound from this week's historic plunge.

More than 308,000 GLD options changed hands yesterday, about twice its daily average in the last month. Topping the action was a January 2015 call spread.

A trader bought 17,300 of the 135 calls for the ask price of $13.40 while selling the same number of the 155 calls for $6.40, according to optionMONSTER's Heat Seeker system. The volume at each strike was more than 4 times higher than the previous open interest, clearly indicating new activity.

This vertical spread cost $7, which is the maximum amount at risk. The sale of the higher-strike calls does limit the potential gain, but it also reduces the cost of the spread by almost half, which makes the profit/loss ratio much greater at lower prices. The trader is clearly looking for a rebound in the price of gold over the next 20 months. (See our Education section)

The GLD finished the day at $134.30, up 1.08 percent. It was above $150 a week ago and above $160 at the start of February.

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