Gold Bugs Can Buy Call Options At a Discount

There's been speculation that the recent bitcoin craze has dulled traders' appetite for commodities. After all, some people are taking out mortgages to buy the volatile cryptocurrency -- which began trading futures last week, and has generated some huge gains in a short time, especially compared to the typically safe, slow crawl of gold and silver. Whatever the motive, the recent cost of "crash protection" on the SPDR Gold Trust ETF (GLD) recently hit a year-to-date high, even as the gold exchange-traded fund (ETF) encroaches on a historically bullish time of year. Below, we'll take a closer look at GLD shares -- and why it could be time to buy short-term calls, if past is prologue.

GLD Calls Are Cheap With Puts In Demand

Similar to the VanEck Vectors Gold Miners ETF (GDX), the 10-day moving average of GLD's put/call skew on 10% out-of-the-money (OOTM) options -- which compares implied volatility (IV) readings for OOTM puts against OOTM calls -- has skyrocketed recently, and now stands at a 2017 high. This indicates traders are bidding up the odds of an extended drop in GLD, which touched a five-month low just last week.

In fact, options traders have been buying to open GLD puts over calls at near annual-high clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the fund's 10-day put/call volume ratio of 1.19 is higher than 98% of all others from the past year.

What's more, total call open interest for GLD stands at just under 1.9 million contracts -- the lowest point in at least a year. Total put open interest, on the other hand, stands at just under a million contracts, in the middling 55th percentile of its annual range. Echoing that, GLD's 30-day IV skew of negative 0.9% is higher than 91% of all other readings from the past year, suggesting calls on the ETF have rarely been cheaper relative to puts.

GLD Rebounding Into Historically Bullish Month

The shares of GLD recently broke support in the $120 area, but found an ally around $117.50, which represents a 50% Fibonacci retracement of the ETF's rally from its November 2016 lows to its September highs. The fund is now on pace for its fourth straight gain, though, and is trading back atop $120 -- a 38.2% Fibonacci retracement of the aforementioned rally, and representing a 10% year-to-date gain for the shares. At last check, GLD was up 0.4% at $120.26.

As alluded to earlier, gold is pacing for its best time of the year, too. Since inception, January has been the best month of all for GLD, with the ETF averaging a gain of 4%, according to Schaeffer's Quantitative Analyst Chris Prybal. Another 4% gain for GLD from current levels would place the shares above $125 -- not far from their September highs. Meanwhile, February has been the second-best month of the year, with GLD averaging a gain of 2.1%.

Considering GLD calls are attractively priced right now, and with the gold ETF approaching what tends to be a very positive month, traders who expect history to repeat may want to consider striking while the iron is hot and scooping up short-term calls. In addition, the fund sports a Schaeffer's Volatility Scorecard (SVS) of 89, which indicates that GLD has tended to exceed options traders' volatility expectations during the past year -- an enticing factoid for would-be premium buyers.