Mystery Buyer Makes Huge Options Bet on Gold Hitting $4000
On Wednesday, an unknown buyer made a $1.75 Million Options Bet That Gold Would Triple to $4,000.
The gold options market saw $1.75 million in block trades betting the precious metal could almost triple in more than a year, surpassing the record.
Around noon in New York Wednesday, 5,000 lots of a gold option giving the holder the right to buy the precious metal at $4,000 an ounce in June 2021 changed hands. The bets were sold at $3.50 an ounce.
“It’s like 18-month term life insurance; what will the world look like if gold is at $4,000,” Tai Wong, the head of metals derivatives trading at BMO Capital Markets, said in an email. “They are hoping for a quick violent move,” he said, referring to the people who bought the call options.
Gold Headed to $4000?
For the call buyer, it's not a matter of gold hitting $4,000 but rather gold hitting $4,000 by June 2021.
Of course one would not have to hold the options all the way through.
If gold suddenly spiked by $1,000 right away perhaps the entity cold sell the options for $15 or more at least tripling the bet. Otherwise these options will quickly decay.
Let's assume the options are held to the bitter end.
Returns On Options Held Full Term
- At a June 2021 price of $4,000 or less, the call buyer will lose $1.75 million.
- Between $4,000.01 and $4003.49 the call buyer will lose some but not all of the bet.
- At precisely $4003.50 the call buyer breaks even
- At $4,000 the call buyer nets $48.25 million ($50 million minus the initial $1.75 million bet).
- At $5,000 the call buyer nets $498.25 million ($500 million minus the initial $1.75 million bet).
The most likely thing, by far, in any time frame is the buyer losses $1.75 million.
Mike "Mish' Shedlock