Bears see $GLD puts soar ninefold

The SPDR Gold Trust continued its steady downtrend today, handing huge gains to downside option positions that expire at the end of this week.

On June 21, Investitute’s market scanners identified the purchase of 5,000 August $117 puts for $0.66 and $0.67 as part of a bearish roll with shares at $119.84. Open interest in the strike was only 316 contracts before the trade occurred, showing that it was a new position.

Those puts traded for $5.89 today, about 9 times their purchase prices. The stock fell 7.28% in the same time period, illustrating how options can far outperform moves in their underlying shares.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

GLD was down 1.64% to $111.21 today. The exchange-traded fund, which reflects the price of bullion, has fallen to its lowest level since the beginning of 2017.