Record Gold Prices Boost Optimism Among Options Traders!

Options traders are paying more to participate in the rising trend of gold. The market skew has shifted from bearish put contracts to bullish call contracts since summer. Gold investment funds attracted $3 billion in July, ending two months of capital outflows.

According to Mihan Blockchain and the company Susquehanna, options market investors are increasingly spending to profit from the rising trend of gold instead of hedging against downside risk, given that the one-month implied volatility of the metal is near its recent lows.

This marks a significant shift from the summer when protection against price drops (through buying put contracts) came at a higher cost.

Gold had lost its 2026 profits before turning green in July

Gold ended the months of March, April, May, and June in the red. During this period, it dropped over 25%, erasing all its gains for the year.

U.S. attacks on Iran led to rising oil prices and heightened inflation concerns. This raised forecasts for interest rate hikes by the U.S. Federal Reserve, and higher real yields negatively impacted assets like gold that do not pay steady returns.

Then, July ended this downward streak with a growth of about 2%. Gold exchange-traded funds (ETFs) attracted $3 billion in that month, ending two consecutive months of capital outflows.

August has extended this recovery trend. Gold has risen back above $4,300 and has gained over 8% so far this month.

Market Shift Towards Call Contracts While Volatility Remains Cheap

The options market has been repriced alongside this rally. Chris Murphy, a derivatives strategy manager at Susquehanna, noted the purchase of 8,000 call contracts at a strike price of 460 for November on the SPDR Gold Trust at an approximate price of $5.55. This fund closed on Monday at $405.49, placing these positions about 13% above the current market price.

Murphy stated:

The market skew has significantly shifted away from bearish put contracts towards bullish call contracts. This has reversed the early summer structure where protection through put contracts was relatively more expensive; this shift has now become evident in recent liquidity flows.

The Skew index, which measures the relative cost of put contracts against call contracts, has shifted from hedging downside risk to participating in the upward trend.

However, hedging activities have not completely disappeared. Traders have purchased about 25,000 put contracts at a strike price of 350 for September at a price of $0.62, which represents an average premium for hedging risk about 14% below the current price.

Whether buying call contracts will be profitable may depend on upcoming Federal Reserve meetings. A definitive halt in interest rate hikes is likely to confirm these bullish speculations, while a hawkish surprise would render these November positions ineffective and detrimental.