The relentless surge in rates is breaking the back of two key macro trades that had been holding firm. Options traders are betting one will recover.
Gold dropped 4% to the lowest since the first week of August, as the 10-year yield climbed to 5.3% and the 30-year yield touched 5.4%. High-yield corporate bonds extended a five-day rout to the lowest since April 2025, according to the iShares iBoxx High Yield Corporate Bond ETF (HYG).
Judging by options flows on Monday, traders think gold has the potential to bounce back. For high-yield bonds, they’re betting things could get worse.
About twice as many calls traded versus puts in the SPDR Gold Shares (GLD), with more than 68,000 calls likely bought, compared to under 32,000 puts, Cboe LiveVol data show. Net trade sentiment was bullish by almost $2.8 million with an imbalance of 105,000 “deltas” leaning bullish, according to Barchart analysis.
While traders sold about as many calls as they bought in GLD, the biggest single trade of the day was a seller of 2,000 375-strike puts expiring in January 2028 worth $5.9 million. The person may have been closing out a bearish position or placing a bet the precious metal finds a floor around $375. GLD traded in roughly a 10-point range between 370 and 380 for much of this summer. When investors sell puts, they are making a bet that a security will stay above that puts strike price. In exchange for taking that risk, they collect that put’s premium.
SPDR Gold Shares, YTD
Both gold and high-yield bonds are trading with strong negative correlations to the 10-year yield – GLD’s 10-day correlation is negative 0.8, HYG’s is -0.99, but options trading in the high-yield HYG ETF was more lopsidedly bearish.
Trading volume in HYG options was more than 2.5 times the 30-day average Monday, with more than 2.5 times as many puts trading as calls and 52,000 puts likely bought, compared to just over 15,000 calls, Cboe LiveVol data show.
iShares IBoxx High Yield Corporate Bond ETF, YTD
About $35 million of options premium was exchanged, with $30 million of it tied to calls, SpotGamma data show. Eleven of the top 12 contracts by dollar-amount bought were puts; ranked by volume, puts accounted for 8 of the 10 most-popular contracts. The most common contract to purchase was the 78-strike put expiring Nov. 20.
“Sentiment in high-yield bonds has been very complacent and the risk of defaults is probably much higher than the market anticipates,” Nigam Arora, founder of The Arora Report, said by phone. “A lot of these are on variable rates and debt is coming due next year. People have liked them for yield but the spread hasn’t been great and I the risk-reward hasn’t been favorable. I wouldn’t touch them.”
