Big trade looks for bounce in gold
Precious metals have taken a beating in recent months, but a large position is apparently looking for a rebound in gold by the spring.
Gold and silver saw big gains earlier this year, only to plummet with the rising dollar and the prospect of higher interest rates as early as this month. Compounding those losses is the recent rally in equities, which weakened the precious metal's status as a "safety trade."
Yesterday, however, the SPDR Gold Trust attracted the purchase of 25,000 March 125 calls in one print for $0.70 yesterday. Volume was well above the strike's open interest of 5,362 contracts, showing that this is a new position.
Long calls lock in the price where investors can buy stock, allowing them to profit from a rally with limited capital at risk. Their cheap cost can also generate significant leverage on a percentage basis if shares move in the right direction. (See our Education section)
GLD fell 0.19 percent to $111.54 yesterday and is down 10 percent in the last three months. The screen shot below from our proprietary ResearchLab market scanner shows how the fund has underperformed the S&P 500:
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