FMX | Connect (Reported 5/20/2011)
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
June Gold settled at $1508.90 per troy ounce, a gain of $16.40 for the day. Futures rallied, volatility was offered, and skew went bid for the call.
Options Commentary:
The market opened stronger and in a repeat of yesterday’s playbook volatility was offered aggressively. This time the December 1510 strike was sold aggressively in straddle and call form.This knocked the December straddle down about $2. Volatility continued to soften further even as the market made its morning highs in the 1504 area. Not much traded that gave an indication of direction. After 9:00 am the market began to sell off and volatility went bid in the shorter dated months, coinciding with the open of GLD. For about an hour, puts were all that people wanted. The market put in a low of 1486.40 but during the 10:00 hour the market turned around aggressively; the sell-off seemed to be a head fake and for the rest of the day the market trended higher. Short option funds returned to the market, selling July put spreads to collect premium in the rally. This is more of the normal behavior of gold. We would expect call spreads to be sold if the market sold off. The 1600 strike option buyer was absent but we do not think he was absent in the futures market. Regardless, options performed the rest of the day with December and July taking turns being bid. By the end of the day straddles had reclaimed most of their losses but call skew was higher.
Directional Analysis:
Options suggest the market is going higher, not because of volatility but because of skew. Every morning for the last 3 mornings straddles have been slammed, coming from the London market. By the end of the day straddles have been bid. Options are saying this is a rally to sell but that this rally has more room to run. In summary, options are saying its a retracement rally.
A couple days ago we thought it would be a smart move for a quick trade to buy above 1500. That idea played out nicely. However, we failed to break last week’s high at 1516.40, suggesting a trading range of 1480-1520 is still in effect. We would fade this rally until we have a settlement over 1516 or a print over 1520. After that our next target is 1533. On the downside, futures could pick up some momentum below 1485, the May 19th low. After that the 50-day MA is on the table again.
Active Options
M 1500 C, M 1570 C
N 1370/1420 P. spread
N 1400/1440 P. spread
ATM Volatility Curve:
As of 4:00 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| M11 | 1510 | 18 | 22 |
| N11 | 1510 | 56 | 60 |
| Q11 | 1510 | 79 | 83 |
| V11 | 1510 | 120 | 124 |
| Z11 | 1515 | 154 | 158 |
| G12 | 1515 | 188 | 192 |
| J12 | 1515 | 218 | 222 |
| M12 | 1515 | 243 | 247 |
As of 4:00 P.M.
Premium Subscribers
(click here to register): Volumes & Open Interest
End Of Day Straddles
Trade Blotter
Settlements
-----
About FMX: FMX Connect is an information, data, and analytics portal for Commodities. The portal provides an all-in-one package including essential market data, independent third party research, industry news, and commodity trading tools. FMX Connect provides efficient, effective, and thorough data that bridges all aspects of commodities onto one screen. The Result; A user friendly application for hedge fund traders, OTC brokers, individual investors, and industry participants
-----
Note: The information presented, while from sources generally believed to be reliable, is not guaranteed and may not be complete. FMX | Connect makes no representations or warranties regarding the correctness of any opinions or information. Past results are not necessarily indicative of future results. Nothing in this report should be construed as a representation to buy or sell shares, futures or options, which contain considerable risks. For internal client distribution only. Any reproduction, re-transmission, or distribution of this report without permission is prohibited. Media correspondents or reporters may not quote any one page or section in its entirety and must attribute all quotes, ideas or concepts herein. Copyright FMX | Connect, ©2009-2010. All rights reserved.