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GLD Options Are Looking Quite Attractive

Lyster Analytics profile picture
Lyster Analytics


  • Gold is currently realizing unusually low volatility, which is unlikely to last very long.
  • I see various serious risks seemingly unaccounted for by Mr. Market.
  • On an implied vol basis, gold options are a cheap and effective hedge against these risks.

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Investment Thesis

Long-dated tail options on NYSEARCA:GLD are looking like a very cheap hedge against monetary and political risks, many of which loom on the horizon. If (or when) these risks become glaringly obvious to markets over the next few years, price movements in gold are likely to react accordingly.

Gold and precious metals in general, have received very little attention in mainstream financial media in recent years and rightly so: In the current Goldilocks period of strong economic growth, low inflation and sturdy financial markets, there seems to be very little potential for either large upside or downside movements in the price of gold. Post 2012/2013 correction, the SPDR Gold Shares ETF (GLD) has been hovering around the 100-130 level with low volatility, historically low volatility to be clear. Trailing 6-month realized volatility of gold currently stands at 5.63% annualized, well below the historical average of around 14% - the lowest it has been since 1997 (FRED).

Source: Yahoo Finance, Available: GLD Interactive Stock Chart | SPDR Gold Shares Stock - Yahoo Finance

I believe, however, that the macro environment is setting the stage for what may be a period of global monetary shenanigans that should beget significantly higher vol in the price of gold. Setting aside the stew of non-US risks such as the risk of Italy’s new regime to the Euro, China’s dangerous debt situation, trade wars, divergent monetary policy and various geopolitical risks (all of which I believe pose a great threat to stability in financial markets) - my bold

This article was written by

Lyster Analytics profile picture
Interested in macro, alternative data and options. Back writing for Seeking Alpha having had two years away from financial narratives, forming fresh new perspectives and opinions.

Analyst’s Disclosure: I am/we are long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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