As the price of gold continues to rise, a large block of trading activity in the gold-linked equity (GLD) has caught our attention. According to over-the-counter equivalent terms, the customer is rolling 250k deltas out of an in-the-money 4,950/5,050 call spread and into a Feb. 20 5,250/5,400 call spread, representing 1.1 mn ounces of gold exposure. This move is significant, as it suggests increased market confidence in the value of gold.

To understand the significance of this trading activity, let’s first define what a delta is. A delta is a measure of how much the price of an option will change in response to a 1% change in the price of the underlying asset. In this case, the customer is rolling their in-the-money call options into new options with a higher strike price, indicating that they expect the price of gold to continue rising.

The net premium paid by the client for implementing this new structure is roughly USD30 mn, which may seem like a significant amount but is relatively small compared to the overall value of the gold market. This highlights the importance of understanding the underlying factors driving market trends and making informed investment decisions.