A million-dollar gold bear emerges ahead of the Fed decision

One of the hottest trades of the past year might have run its course, if one options trader gets their way.

In one of the most interesting macro trades of the day, someone sold upside call exposure in the SPDR Gold ETF (GLD) while simultaneously buying downside put exposure in a two-pronged trade that both brings in a million-dollar credit and creates potential for big gains if GLD drops at least 15% by mid-July.

The trader sold 4,000 of the $450-strike GLD calls expiring July 17 for a credit of $3.1 million, then bought 8,000 of the $360-strike puts expiring the same day for $2 million. That means as long as GLD stays below $450 by expiration, the trader is essentially getting paid to take a long-shot bet on a big crash in gold.

In the context of gold’s three-year, 125% rally, it’s a contrarian view. But precious metals have struggled since late January, when GLD hit an all-time high of $510. Perhaps no coincidence: the trader’s breakeven price to the upside – $450 – is almost exactly April’s high price.

One way to interpret the trade could be a proxy bet on the Fed and interest rates. GLD touched its year-to-date low in March when the 10-year Treasury yield spiked above 4.4%. Fed funds futures traders are expecting no change from the central bank later Wednesday, but with volatility in crude oil prices and a new incoming Fed Chair, perhaps gold’s interest-rate tailwinds are slowing.

Gold was pulling back slightly on Wednesday with the GLD off 0.6% to $419.34 in early trading.