Friday, May 16, 2008

 

THE STRIKING PRICE DAILY   Gold Options May Trade by May's End By STEVEN M. SEARS ONE OF THE BEST THINGS about StreetTracks Gold Trust (GLD) is that it trades at about $86. It's one of the worst things, too, because investors have not been able to use options to hedge and speculate on GLD's journey from a 52-week low of $63.39 to a high of $100.44. All of that is about to change. After about four years of waiting, wanting, and whining, options on GLD could be listed as early as May 30, according to the Chicago Board Options Exchange. CBOE, like other options exchanges, is waiting for the Securities and Exchange Commission to issue an approval order for what is arguably one of the most-anticipated options products to be launched in the past five years. The introduction of options on GLD is expected to be followed by options on other commodities, such as silver, furthering blending the securities and commodities markets. Indeed, the launch highlights the start of a new era of cooperation among regulators. The Securities and Exchange Commission, which regulates stocks and options, and the Commodities Futures Trading Commission, said in mid-March that they signed an agreement to forge closer working relationships. This is important because many worthwhile financial products, including GLD options and even credit-default options, could arguably be regulated by SEC and CFTC. Until now, there was no easy way for the regulators to solve jurisdictional issues. Instead, they adopted the typical Washington turf conscious posture of doing nothing, and the markets and investors suffered. The new so-called memorandum of understanding establishes a framework for SEC and CFTC to discuss and coordinate common regulatory interests, such as portfolio margining, foreign security index products, and oversight of firms registered with both agencies. Options on GLD are the test case of the new relationship. Even though the GLD exchange-traded fund was approved by SEC, commission staffers reportedly feel they made a mistake when they approved the gold ETF because it actually holds gold, and is thus outside of their regulatory purview. Commodities, including precious metals, are CFTC-regulated. Michael Schwartz, Oppenheimer & Co.'s chief options strategist, said it is about time options on GLD were brought to market. "Gold has been one of the biggest investment stories in the past few years," Schwartz said, "and options on GLD have been much needed, and sorely missed, by investors."