BIG MONEY BETS ON A DROP IN GOLD PRICES
Some bearish bets were seen in the GLD yesterday as big investors appear to be hedging themselves and/or betting against the yellow metal:
GLD – SPDR Gold Trust ETF – Shares of the exchange-traded fund, which mirrors the price of gold bullion, may be up more than 1.25% to $112.82 today, but option traders populated various contracts with bearish strategies. A hefty put spread appeared in the June contract. The transaction involved the purchase of 17,000 puts at the June $105 strike for a premium of $3.50 each, marked against the sale of 17,000 puts at the lower June $95 strike for roughly $0.52 apiece. The net cost of the pessimistic play amounts to $2.98 per contract. If the investor is holding a long position in GLD shares, the spread provides downside protection in case shares slip beneath the breakeven price of $102.02, by expiration in June. Additional bearish indications appeared in the September contract. One trader initiated a risk reversal by selling 5,000 calls at the September $130 strike for $4.55 each, spread against the purchase of 5,000 puts at the lower September $100 strike for $3.60 apiece. GLD’s shares must trade beneath $130.00 through expiration in order for the reversal-player to keep the net credit of $0.95 received on today’s transaction. Additional profit, or downside protection on a long stock position, kick in beneath the effective breakeven share price of $100.00.
Source: IB
I appreciate getting the data on option positions summarized in a tight statement like this. I do wish that more financial writers would be a bit more specific about who the “big investors” are by saying something along the lines of “some big investors are …”
Personally, I believe that what is pushing the gold and silver markets around (alla GATA) primarily is indirect “intervention” or capping by US and certain other central banks as the jobs data and the spread between the long term treasuries and short terms widen is telling us that the Fed will probably need to remain in the quantitative easing business and likely at higher rates for the forseeable future. Japan is a mirror for us and their recent talk about an “all in reflationary policy” is probably the only thing that can keep the massive shadow of inventory of defaulted but not forclosed houses and the comming wave ALT-A and Option ARMS reset related defaults, coupled with job related forclosures from imploding under any substantial interest rates changes, is for the US to also engage in longer term and large QE, with an emphasis on getting money to the real economy in R&D investment, factory building incentives and a total workforce and general educational ovehaul of the US system.
As I view the action in the Gold futures market and then behavior in the Asian trading hours, its seems apparent to me that most of the action is price capping vs. the current growing desire of sovereign and other financial interests to get their physical gold out of London and NY based vaults and out of paper markets and back under their control. Anyway, thanks for a nice report.
Duffminster
http://www.duffminster.com/SilverandGold