On Friday, each of the US indices fell anywhere from 1%-2% after the number of new coronavirus cases increased, adding to the concerns of the virus causing a global economic slowdown. Going into the weekend, I got really concern when Friday’s losses sent the US indices lower on the weekly. The concerns were justified when the the Dow Jones Industrial Average futures were down more than 300 points Sunday evening.
And as we got news of the virus spreading on Monday, the DOW fell 1000 points, one of the biggest drops in DOW history. I knew more pain was ahead because when the Nikkei 225, Japan’s main stock index, opened on Tuesday, after being closed on Monday for a holiday, it quickly dropped almost 5%.
So here we are, it's Tuesday, the Markets are closed and the DOW is down another 800+ point. But one asset that isn't down is Gold. Because we continue to get news of the pockets around the world of inflected people, investors are nervous that the global economy is slowing down and jumping into (head first) safe haven assets such as gold to the point that gold is at 7 year highs.
However, gold prices dipped today as traders took profits. But it was traders, not investors that took profits in gold. Do the investors think there is more pain in store in the equity markets? Not necessary, but the do think Fed Powell will have no choice and will be cutting rates this year...in an attempt to keep the party going. In theory a cut in rates equates to fiat valuations going down, which equates to valuations in hard assets going up. At least that's what the Smart Money is thinking as I noticed bullish unusual options activity in GLD.
GLD is the SPDR gold ETF with the objective of the Trust to try and reflect the performance of the price of gold bullion by holding gold bars and issuing Baskets in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets.
Now I believe the trade that the Smart Money put on was a bull call options spread. A bull call spread is a strategy that is placed with the hope that prices will increase. The strategy uses two call options to create a range consisting of buying a lower strike price and selling an upper strike price.
Today, the Smart Money bought over 14,000 call options with a strike price at $164 and sold over 8,000 call options with a strike price at $170, both expiring in April 2020.
GLD price has already hit my target 1 and target 2, so will target 3 get hit over the next 6-8 wks, only time will tell?
This post is my personal opinion. I’m not a financial advisor, this isn't financial advice. Do your own research before making investment decisions.
Posted via Steemleo