$GLD Winning Post Brexit

Stocks opened lower after the long weekend and remain in the red into midday Tuesday. The S&P 500 is down 16.81 points to 2086.14 and three points from session lows.

Losses across US and Eurozone equity markets, along with some pre-jobs data jitters, are giving Treasury bonds a lift and the yield on the benchmark ten-year has tumbled to new lows of 1.37%.

Gold is also catching a “safety” bid and is up $13.5 to $1352.50. Crude oil dropped $2.24 to $46.75.

Energy (XLE) is the weakness sector on Wall Street amid the sell-off in crude. Basic Materials (XLB) and Financials (XLF) are pacing the decline as well. However, Consumer Staples (XLP) and Utilities (XLU) are seeing relative strength.

CBOE Volatility Index (VIX) is up 1.53 points to 16.30 and options volumes are running well off the brisk pace seen in recent trading days. Roughly 3 million calls and 3 million puts traded across the exchanges through the first two hours. Anticipated volume for the day is roughly 14 million contracts and 15% below the one-month daily average.

Yahoo (YHOO) August 39 calls, Cheniere Energy (LNG) July 40 calls, and Arcelor Mittal (MT) Jul 5 calls are among the most active single stock options.

Meanwhile, the largest options blocks traded Tuesday are in the SPDR Gold Trust. Trading under ticker GLD, this exchange-traded fund holds the yellow metal, stored in bank vaults. As we can see from the chart, shares have been ripping higher since the June 23rd Brexit referendum amid aggressive flight to safety buying of gold across global market.

See Tradespoon’s Stock Forecast on SPDR ETF Gold Shares (GLD)

Tradespoon’s Stock Forecast on SPDR ETF Gold Shares (GLD)

The bullish trend in gold continues after the three-day weekend and shares of the gold fund are up another 60 cents to $129. With the ETF testing levels not seen in two years, an investor buys the September Quarterly 135 – 140 call spread for 96 cents, 66000X. That is, they bought 66,000 September 135 calls for $2.37 and sold 66,000 September 140 calls at $1.41. These contracts are Quarterly options that expire on the last business day of September 2016.

The call spread is notable for a number of reasons. For one, the size is substantial and represents a total premium outlay of $6.3 million. Additionally, with shares at $129, the spread is out of the money and therefore the strategy is rather aggressive. The expiration breakeven is at $135.96 per share and 5.4% above current levels. The potential profit is $4.04 per spread (or $26.7 million) if the ETF rallies beyond $140 through the quarter.

The gold fund has advanced 7.4% since the Brexit vote and 11.5% in a little more than a month. The large call spread suggests that one big institutional player expects the trend to continue through the remainder of this quarter and that, in turn, will likely happen if investor sentiment remains cautious or bearish. That is, gold will likely outperform if anxiety levels remain elevated and stocks falter further.

In the short-term, the S&P 500 has support around current levels of 2086, 2075 and 2050. Resistance areas include 2091, 2100, and 2110.