Call buyers hit pay dirt as $GLD rallies

The SPDR Gold Trust caught a bid as stocks tumbled today, turning large profits in bullish option positions.

On Aug. 9, Investitute’s proprietary programs found that 24,400 October $131 calls were purchased for $0.35 to $0.37 with shares at $120.84. Open interest in the strike was a mere 62 contracts before the trades occurred, showing that they were new positions.

This afternoon those calls sold for $0.70, doubling in value. The stock was up just 1.42 percent at the same time, illustrating the kind of leverage that can be obtained through options.

Long calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

GLD rose 0.51 percent to $122.49 today, nearing the top of a range that has been in place for at least four months. The precious metal represented by the exchange-traded fund, which is often used to hedge equity losses, also benefited as the dollar came off its highs when stocks dropped this morning.