FMX | Connect (Reported 3/18/2011)
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 $1416.10 per troy ounce, a gain of $11.90 for the day. Volatility was slightly firmer on the day, but near the close theta was taken out.
Active Options
J 1450 C (globex)
M 1500 C (globex)
K 1450 C (globex)
Analysis:
Prior to the Comex open London marked volatility higher in sympathy with the higher futures. Straddles were up approximately $1.50 across the board. Pressure on calls backed off in May, June and August but nothing significant happened. Early midday a rumor of a ceasefire in Libya caused futures to wash out $6. Nothing traded in options though. For comparative purposes, crude dropped $1.80 and options were very active. As the market moved back higher offers started to come in, primarily in the form of June calls being sold by long speculators and/or dealers selling the May 1480 C and some other strikes in the area. A December fence traded for the call, most likely a dealer sampling the skew on small volume. The December 1200/1100/1000 P. tree was sold at 6.70 by a market maker after trading as low as 5.80 with the underlying $30 lower earlier in the week. It’s interesting to note how this put tree has increased in value despite a). volatility being softer and b). puts being bid.
Commentary:
For the first half of the day the market behaved like a call skew market but any rally in volatility is short-lived, even if the market stabilizes at higher heights. This market does not like calls. The only puts someone can buy are puts in the $5 range between April and August expiration. Everything else is priced higher in sympathy with what is assumed to be producer hedging or mega-bearish dealers.
This morning’s technical commentary: Tuesday’s sharp break has prompted a test of key 138970* support. The market remains near term negative and could continue pressured action against 138970*. A close under 138970* or drop under 1380 marks a larger peaking turn and calls for selloffs down to 1365-136130*. The market’s ability to stabilize over 138970* yesterday hints for recovery action today, but closes over 140550* and 141330* are needed to rekindle bull trend forces
Overheard on the Floor
Clerk: "Hey boss, this fence you did with trader......" Trader: "its not a fence" Clerk:"I mean this straddle"......Trader:"its not a straddle either.....Tell me what you think it is.." Clerk: "Whatever it is we have an out, anyway, he’s coming in the other way"...... Trader: It’s a conversion, thanks for the help.
(Enter Trader 2)
Trader 2 to Trader: If you’re backing him I’d be happy to sponsor your clerk. He can even stand next to me in the ring.
ATM Volatility Curve:
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| J11 | 1416.1 | 25 | 29 |
| K11 | 1417.5 | 54 | 58 |
| M11 | 1417.5 | 77 | 81 |
| Q11 | 1418.9 | 116 | 120 |
| V11 | 1420.2 | 152 | 156 |
| Z11 | 1421.7 | 181 | 185 |
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