Sandstorm Gold Ltd (SAND)

[lady glueck]

how these figs? tmrw is option exp day april OI with strike @1.300

Preliminary data for Friday show that the number of open positions for puts in April gold options was 99,850. Open interest in calls was 116,244.

Large Open Interest At $1,300 Strike

There were 5,717 puts and 3,526 calls at $1,300, which held more open interest than any other nearby strike prices. This could result in some downward pressure toward the strike since it’s below current prices, said James Ramelli, trader with KeeneOnTheMarket.com, which focuses on options.

“One of the things we always look at is how much the market is implying the underlying (futures) can move by expiration,” he said. “This time around, by expiration in a couple of days, they are still implying that gold could move as much as $15. So if we see pressure to the downside, that would put us right around the $1,300 region.”

A commodity tends to gravitate toward an area with significant options open interest due to something called “pinning,” he explained. The same occurs in equities, he added.

Those who don’t want to see the market above $1,300, in this instance, might turn sellers in the futures, wanting to see the options they sold expire worthless, he explained.

Additionally, if the market were above $1,300 as of expiration, call holders would be left with a futures contract they didn’t want.

“So going into expiration, to cover their position, they either sell the calls or sell futures against it. That also puts pressure,” Ramelli explained.

Conversely, if it appears the market might be below $1,300, those with puts might have to buy the futures. “That’s what causes pins (to certain strike prices),” he said.

George Gero, precious-metals strategist with RBC Capital Markets Global Futures, said he has observed selling in the futures and buying of out-of-the-money calls over the last week. He looks for those out-of-the-money calls to expire without being exercised.

Like Ramelli, Gero said some selling is likely occurring from options traders who do not want to take on a futures contract due to factors such as margin calls, which is collateral to hold a futures position. “They’re selling ahead,” he said.