Gold rally brings out options bulls

Fri Oct 23, 2015 3:07pm EDT
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By Saqib Iqbal Ahmed

NEW YORK Oct 23 (Reuters) - With gold on track for its second-best month this year, traders in the options market are betting there is plenty of steam left in the rally.

Spot gold, which touched a five-year low of $1,077 an ounce in July, is up about 8 percent from then and broke through its 200-day moving average last week, the first time since May.

Market watchers attribute the strong bounce in the price of gold to recent market turmoil and the uncertainty around the timing of the long-awaited U.S. Federal Reserve interest rate.

Traders have lapped up bullish options contracts on the SPDR Gold Fund, which tracks the performance of the price of gold bullion. Since the start of August, the gold fund has attracted inflows of about $950 million.

The demand for call options, that convey the right to buy the fund's shares at a certain price in the future, is high compared with the appetite for puts, usually used for more bearish strategies.

Presently, there are 2.3 calls open for each open put contract, up significantly from January, when there was just 1.6 call contract open for each open put contract.

Calls on the fund's shares rising above $125 by mid-January, up about 12 percent from its current level, represent the biggest block of open interest in the fund's options with 86,000 contracts open.

Data from Commodity Futures Trading Commission last week showed that speculators raised their net long position in gold futures by 32,725 contracts to 82,546 contracts, highest since mid-May.   Continued...