Long-Term Play Sees Gold Stuck in Range

Apr. 7.11 | About: SPDR Gold (GLD)

By Chris McKhann

As the precious metal hit another new high yesterday, one trader appears to have made a long-term bet that shares of the GLD exchange-traded fund will stay in a narrow range. ] As gold hit another new high yesterday, one trader appears to have made a long-term bet that shares of the GLD exchange-traded fund will stay in a narrow range.

The SPDR Gold Shares ETF, which seeks to replicate the performance of gold bullion, finished the day at $142.62, just off the highs of the day and adding 0.23 percent to yesterday's strong performance. Shares have trended up from $110 a year ago and have recently broken out of the range that had lasted for the previous six months.

Overall option action in the GLD has been heavy, but one trade in particular caught our attention. Our systems show that 8,000 each of the January 2013 150 calls and 140 puts traded at the same time, with the calls going for $14.73 and the puts for $14.97.

It appears that both calls and puts were sold. Although the call volume was less than open interest, this appears to be a new short strangle position that will profit from $110.80 to $179.80 at expiration.

The implied volatility of those long-term options is 23 percent, compared with an average of 15 percent and a 30-day historical volatility of 12.5 percent. The latter reading has only been as high as 21 percent in the last year.