Bullish strategy hits pay dirt on gold

A large trade has cashed in on the SPDR Gold Shares Fund as precious metals have rallied in recent weeks.

On April 4, Investitute’s tracking systems detected the purchase of 5,000 May $123 calls bought for $0.94-$0.95 and the sale of 7,500 May $113 puts for $0.23 while GLD was trading around $119.66.

Those calls are now trading for $1.93, just shy of doubling in value. And the puts have fallen to $0.10, representing a profit of some 57 percent for those contracts. The stock has risen less than 2 percent in the same time period, illustrating the leverage that can be achieved through options.

Such combination trades are highly bullish a rally boosts the price of the long calls while decreasing the value of the puts that were sold. But the opposite occurs if the stock drops.

GLD fell 0.29 percent to close at $122.24 yesterday but only after reaching its highest intraday level since Nov. 9. The precious metal and related equities have gained while investors have sought so-called safe-haven assets as stocks pulled back amid global political tensions.