Afternoon Gold Fix – March 3, 2011
FMX | Connect (Reported 3/03/2011)
The following is a report of Gold Option’s activity in the Over-The- Counter and Exchange traded venues. Information is compiled and summarized below.
Summary
April Gold settled at $1416.40 per troy ounce, a loss of $21.30 for the day. Volatility was offered as the market retreated from all-time highs.
Active Options
M 1250 P
Z 1400/1750 C. sprd vs. 800 P
Z1100 P
J 1450 P
Analysis:
Volatility was offered all day, consistent with a call-skew based market. Selling was predominantly in calls that have been bought over the last two weeks in April and June 1500 C. Straddles were quickly offered after that in sympathy. Puts did absolutely nothing in the drop, for example the December 1100 P traded at $8 $20 higher from today’s close and then at $8 again $10 higher, and then finally at $8.40 near the lows. The very end of the day saw a distinct change in tone as dealers bought June puts, starting with the 1250 P and spreading through the surrounding strikes afterwards. Only then did volatility firm up but overall it was down on the day, as was skew.
Commentary:
Everything about today’s option’s activity was based on fund liquidation. One broker sold out his December 1400/1750 C spread and bought back his 800 P, locking in some nice profits. The June 1600 C was sold by another fund for about $7.50 after being bought in the $6 area two days prior. There were residual bids in June options during the sell-off but it smelled more like people taking profits than bulls buying the dip. The single most important event of the day happened in the last half hour when one of the top three dealing banks in precious metals purchased the June 1250 P at $3.50 approximately 5000 times. At first dealers sold to him along with market makers but soon thereafter it became a frenzy as everyone sought to buy puts in May and June. It took all of ten minutes for the 5,000 lots that were sold at $3.50 to become $3.50 bid by the original sellers; it just goes to show how fragile and discontinuous this market’s option liquidity is. Important orders are chunky and sparse.
ATM Volatility Curve:
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| J11 | 1415 | 39 | 43 |
| K11 | 1415 | 64 | 68 |
| M11 | 1415 | 83 | 87 |
| Q11 | 1420 | 121 | 125 |
| V11 | 1420 | 156 | 160 |
| Z11 | 1420 | 184 | 188 |
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