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Precious metals are bouncing today, and someone’s trying to leverage the move with options.
Approximately 27,000 October 11 calls were purchased this morning in Goldcorp (GG). The initial blocks fetched $0.15, before the demand lifted premiums as high as $0.23.
Calls fix the price where investors can buy a security, so they tend to appreciate when a stock moves higher. (See our Knowledge Center.) The kicker is that their lower cost can generate significant leverage on a percentage basis — especially when you understand gamma.
GG rose 2.78 percent to $10.34 in afternoon trading. The bounce comes just one session after the Canadian company dipped below $10 for the first time in more than two years.
But more than just a dead-cat bounce might be at work because the U.S. dollar is under pressure, which is usually a positive for gold. The move comes immediately before Thursday’s European Central Bank meeting and follows a surprisingly weak U.S. producer-price inflation reading this morning.
GG isn’t rallying in a vacuum. The industry-tracking Market Vectors Gold Miner ETF (GDX) is up 3.8 percent, its biggest gain since mid-February.
Do you want to master options? Sign up for our Options Stars 2018 educational power session on October 19 in Chicago!
In conclusion, there’s been a one-way selloff in gold for months as the greenback rallied and market watchers looked for the U.S. Federal Reserve to raise interest rates. But today a large options trader is looking for that trend to reverse.
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