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 almost 116,000 420-strike calls in the SPDR Gold Shares ETF (GLD) expiring Sep. 18, contracts that are currently in-the-money, collecting a total premium of $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, creating a $58 million net credit.
While selling spreads can often be considered a neutral trade, the fact the trader sold in-the-money calls pushes their breakeven point at expiry to $425, the midpoint of the two sides of the trade. With GLD currently trading at $427, it makes the trade an effectively bearish bet that needs the precious metal to retreat slightly over the next four weeks.
“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
The bearish trade is particularly notable ahead of a week that includes major macroeconomic events including the release of PCE inflation on Wednesday and the Jackson Hole Economic Symposium that begins on Thursday. Gold’s been rallying even as the 10-year yield tests multi-year highs and real interest rates climb, which conventionally has been considered a negative for gold, a non-yielding asset.
It should also be noted that the monster trade runs counter to most of the other options flows in GLD, which lean quite notably bullish, and have for several weeks.
Traders likely bought more than 37,000 calls in GLD today, compared to 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.
