Someone’s Digging for Gold in the Options Market

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Precious metals are bouncing today, and someone’s trying to leverage the move with options.

Approximately 27,000 October 11 calls were purchased this morning in Goldcorp (GG). The initial blocks fetched $0.15, before the demand lifted premiums as high as $0.23.

Calls fix the price where investors can buy a security, so they tend to appreciate when a stock moves higher. (See our Knowledge Center.) The kicker is that their lower cost can generate significant leverage on a percentage basis — especially when you understand gamma.

GG rose 2.78 percent to $10.34 in afternoon trading. The bounce comes just one session after the Canadian company dipped below $10 for the first time in more than two years.

But more than just a dead-cat bounce might be at work because the U.S. dollar is under pressure, which is usually a positive for gold. The move comes immediately before Thursday’s European Central Bank meeting and follows a surprisingly weak U.S. producer-price inflation reading this morning.

GG isn’t rallying in a vacuum. The industry-tracking Market Vectors Gold Miner ETF (GDX) is up 3.8 percent, its biggest gain since mid-February.

Do you want to master options? Sign up for our Options Stars 2018 educational power session on October 19 in Chicago!

In conclusion, there’s been a one-way selloff in gold for months as the greenback rallied and market watchers looked for the U.S. Federal Reserve to raise interest rates. But today a large options trader is looking for that trend to reverse.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.