imageFMX | Connect (Reported 10/11/2011)

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

December Gold settled at $1,661.00 per troy ounce, a loss of $9.80 for the day.


Market Recap:

Gold prices drifted lower on Tuesday, with financial markets eagerly awaiting the results of Slovakia’s vote to approve additional EFSF funding. The current expectation is that Parliament will approve it in the next couple of days, even if the present governing coalition unravels.

Yesterday we noted low trading volumes as a cautionary signal for gold buyers, and today saw a small improvement for both futures and options. Volatility is continuing to regress lower on decreasing European anxiety and bullion remains tethered in a trading range. Options activity was mostly limited to the November and December contracts, and calls were offered aggressively.  November call skew is firmly negative two weeks from expiration, presenting a bleak outlook for the immediate future. On balance, market sentiment is somewhere between slightly bearish and flat. Puts remain well bid compared to the relative lack of movement, so it probably shouldn’t come as a surprise that the December 1500 and 1450 puts were sold earlier. Slovakia may reach a decision on the EFSF overnight and could provide impetus to this market.

 

Directional Commentary: 

Options: Options activity suggests trading will be range-bound to bearish. November and December calls are being offered cheaply relative to puts, and the trend in volatility is lower. In our opinion, many speculators will be looking for sell rallies to reduce both downside exposure and (if through options) time decay. Conclusion: Somewhat Bearish / Range-Bound

 

Technical: After trading to 1886.70 in the overnight session (and slightly above last week’s highs) December futures finished the day approximately $10 lower and back in the trading range. As we noted yesterday, gold is struggling to find support for a sustained rally and we are looking for a settlement above the top of the range (1680) or below the bottom (1585) to initiate the next leg in either direction. Rallies on light volume and declining open interest should be viewed critically, as they often do not offer favorable risk/reward payoffs for going long (one factor being it can be much harder getting out in a sell-off). While the market seems content to trade sideways to slightly higher for the near-term we will be looking for bullion to test support at the 200-day moving average (1540) or resistance at the 50-day moving average (1750) before signaling its next major movement. Conclusion: Neutral (Bearish Intermediate)

 

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Active Options

X 1700 C, X 1800 C

Z  1450 P, Z 1500 P

Z 2000/2100 Call spread

 

ATM Volatility Curve:

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As of 1:30 P.M.

 

Volatility Smile:

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***From NYMEX Settlement

 

End of Day Straddles

GC      
  Future Bid Offer
X11 1660 72 76
Z11 1660 127 131
F12 1665 176 180
G12 1665 213 217
H12 1665 240 244
J12 1665 272 276
K12 1665 297 301
M12 1665 319 323
N12 1665 343 347
Q12 1665 363 367
U12 1670 384 388
V12 1670 401 405
X12 1670 418 422
Z12 1670 437 441

As of 1:30 P.M. 

 

 

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