Gold is up 15% this month, rallying alongside higher interest rates and quietly on pace for its best month since 2008. The biggest trade in the entire options market today says that run is coming to an end.
Twenty minutes after the market opened Monday someone sold out of an existing position of 116,000 420-strike calls in the SPDR Gold Shares ETF (GLD) expiring Sep. 18, contracts that are currently in-the-money, collecting $202 million dollars. The trader then used some of that money to buy the same number and expiry of 430-strike calls for $144 million, taking in $58 million and “rolling” into a new position.
While the new position is still a bullish stance, it’s a smaller one, arguably a sign of waning confidence for one of the biggest bulls in the ETF’s recent trading history ahead of a week that includes major macroeconomic events including the release of PCE inflation on Wednesday and the Jackson Hole Economic Symposium in Wyoming that begins on Thursday.
“The probability is very high that gold sees a short-term pullback,” said Nigam Arora, founder of the Arora Report. “Momentum-crowd flows remain very bullish but smart-money flows have turned negative. GLD has already seen about $60 million of negative net money flow today.”
SPDR Gold Shares (SPY), YTD
Gold’s been rallying even as the 10-year yield tests multiyear highs and real interest rates climb, which conventionally has been considered a negative for gold, a nonyielding asset.
It should also be noted that most of the other options flows in GLD on Monday leaned quite notably bullish, and have for several weeks.
Traders likely bought more than 37,000 calls in GLD today, compared with less than 20,000 puts, according to ThinkOrSwim data. Among the top 15 contracts by volume Monday, 13 were calls, SpotGamma data show.
Volume in the GLD ETF was on pace for almost 5x the 30-day average, thanks in large part to the big call spread, Cboe LiveVol data show.
(Correction: Article adjusts to reflect the ‘GLD’ trade was someone taking profit and not opening a new position in the 420-strike calls.)