Gold bull bets $13.5 million on 9% price rally by March
High-profile billionaires who have put their money where their mouths are by betting big on gold often make the news. When tried-and-true investing pros come out publically in favor of an asset class that is too often dismissed as a barbarous relic, such stances catch the attention of the stock cheerleaders in the financial media, who otherwise are prone to bash the yellow metal.
John Paulson, Paul Singer, Ray Dalio, George Soros, Stanley Druckenmiller, and David Einhorn are just a few of the billionaires in recent times whose large gold stakes or pro-gold statements have made headlines.
Huge options bet placed: This week, another presumably wealthy investor has caught the attention of the talking heads, although whether he or she is a billionaire remains to be seen. According to CNBC, on Tuesday, when gold gained more than 1%, one trader spent more than $13 million on a bet that the SPDR Gold ETF, the GLD, would rise to levels not seen since May 2015 in the next two months. Specifically, that trader purchased 75,000 of the March 108/117 call spreads for $1.80 each. Since each options contract accounts for 100 shares of stock, this is a $13.5 million bet that the GLD will rise more than 9% by March expiration.
This was the largest options trade in the whole market that day, RiskReversal.com founder Dan Nathan. What I find interesting about the trade is that its actually targeting a breakdown level from August and November.
Interest in gold ETF rising: The GLD is the largest gold-linked exchange-traded fund in the world and is a common security used by traders to attain exposure to the bullion price. Its also become popular among investors who want longer-term allocations to gold. However, investors shouldnt mistake owning a gold ETF for true ownership of the physical metal because its almost impossible to redeem shares for real bullion, among other shortcomings.
Still, renewed interest in gold ETFs often signals that mainstream investors who normally chase momentum stocks are reallocating toward safe havens. And in the past week, gold ETFs have been on a hot streak as stocks have struggled. Investors expanded holdings in gold-backed exchange-traded products for an eighth day, the longest run in a year, Bloomberg reported.
No doubt, meat-and-potato stock investors will increasingly seek refuge in gold if equities continue to correct and lapse into bear territory. In the meantime, the anonymous traders ultra-bullish $13.5 million gold bet has us wondering: Does he/she know something that we dont?