FMX | Connect (Reported 7/11/2011)
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
August Gold settled at $1549.20 per troy ounce, a gain of $7.60 for the day.
Market Recap:
Monday marked the 5th straight day of Gold’s unabashed rally, with August futures pushing up as high $1,557.60 per ounce and trading strong into the afternoon session. Today’s gains were propelled by fresh debt concerns out of Europe (specifically, Italy), and a continuing standoff over the U.S. debt ceiling.
Volatility was firm from the open without a lot of featured trades. Options were priced higher in the rally, but most speculation by bulls was on the put side. February, October and December puts were sold. One bear speculator bought the December 1475 put. It wasn’t until futures broke 1550 (once again) that the call side caught real interest. Risk reversals, call spreads and outright calls were quoted and bought by dealers, speculators and market makers looking for a port in the storm. Volatility spiked before President Obama began his press conference at approximately 11 am. No new information really surfaced during while we was speaking and after he finished speaking volatility softened and futures sold off slightly.
Volatility was very strong on the day with the term structure taking its cue from August. August would rally, and October on back would follow suit. This process repeated several times during the day. This we are happy to saw is more “normal,” whereas in the past, volatility would rally first in the backs. We still think is ridiculous to have a breakeven curve with a $5 contango, but who we are we to fight it. Volatility and wings both finished higher on the day, a rare occurrence. This is testament to the intense uncertainty of the market and the perception that we could see a several-standard deviation move in bullion.
We think it’s interested that gold was so strong considering silver’s lack of participation in today’s rally. It’s convenient to say this, but we’re going to say it anyway: gold is money and silver is not. Silver is an industrial metal with precious qualities. Believe us, Europeans are not buying bars of silvers because their economy is going to hell in a handbasket; they are buying gold. While we think silver will catch up to gold is in a sustained rally we think staying long gold is still the way to go in the current environment.
Directional Commentary: Options: Volatility, skew and wings were all bid on the day. Speculators showed more of an interest in selling puts than buying calls but the overall sentiment remains bullish. Conclusion: Bullish
Technical: Gold settled just under 1550. We are looking for a settlement above 1556 to begin the next leg higher and into all-time record territory. August gold is still struggling to overcome selling at the 1560 area, very close to the June 22nd high of 1559.30, and may see some immediate relief with an advance over that level. As the market approached the 50-day moving average at 1523 we become more neutral.
Active Options
Q 1600 C
U 1700 C
Z 1475 P
Z 1500 P /1650 C Fence
G 1700/2000 Call Spread
ATM Volatility Curve:
As of 4:00 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| Q11 | 1550 | 35 | 39 |
| U11 | 1550 | 63 | 67 |
| V11 | 1550 | 87 | 91 |
| X11 | 1551 | 106 | 110 |
| Z11 | 1550 | 122 | 126 |
| F12 | 1555 | 142 | 146 |
| G12 | 1555 | 159 | 163 |
| H12 | 1555 | 175 | 179 |
| J12 | 1555 | 192 | 196 |
| K12 | 1555 | 207 | 211 |
| M12 | 1555 | 220 | 224 |
As of 4:00 P.M.
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