Tuesday, April 10, 2012

Bill Gross and options trader agree

Bill Gross has mentioned recently that Ben Bernanke will deliver QE3, and, perhaps, QE4 and QE5. One GLD options trader bets that QE3 will push the GLD to at least $185 by mid-July.

GLD has erased 7% over the last month, and dropped 0.1% to $161.28 on Thursday, as the lack of a third round of Federal Reserve monetary easing damps demand. The ETF is off nearly 13% since hitting $184.59--the ETF's all-time high--on Aug. 22.

"It looks like they are thinking GLD will make a new high around July expiration," said Todd Salamone, director of research at Schaeffer's Investment Research. "It could be someone expecting a breakout and betting on QE3 by July."

The trader set up a strategy known as a "debit spread" on Gold Trust options, according to Salamone, buying 20,000 July $185 calls, while selling 20,000 $210 calls of the same expiration. The strategy, which has a break-even at about $185.70, requires the ETF's shares to jump 15% by July 16.

The trader maximizes profit at nearly $50 million before commissions and fees if the shares rise 30% to trade at $210 by July expiration.

Gold posted a record of $1,925 an ounce in the New York futures market last September, went into consolidation phase and finished at $1,652 an ounce Friday.

 Less than four weeks earlier, gold had tumbled--shedding almost $100 an ounce in a single day--as a statement about the economic outlook from the Fed's rate-setting committee undermined hope for further easing. On Monday, Bernanke gave gold a boost, saying the U.S. labor market was still unstable--a comment some market watchers interpreted as a sign that he had left the door open for QE3.