Afternoon Gold Fix – March 4, 2011
FMX | Connect (Reported 3/04/2011)
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 $1428.60 per troy ounce, a gain of $12.20 for the day. Volatility and skew reversed some of the previous day’s losses in a relatively lackluster session, despite strong futures movement.
Active Options
V 1200 P /1800 C Strangle
Z 1200/1400 1 x 2 P. sprd
Q 1275 P
Analysis:
Volatility was softer on the open as the market backed away from yesterday’s lows. A bank purchased the October 1200/1800 strangle 500 times. People were pretty eager to sell volatility. After a brief lull futures started to rally. Aggressive bids came in on globex for June and August calls. Volatility moved higher in conjunction with the market from there. Near the end of the day a dealer purchased the August 1275 P, supporting the put wing. Options seemed to undo approximately half of what happened to them yesterday. Skew was up, volatility was higher, and puts were lower.
Commentary:
June is now the focal point for changes in volatility higher. Although it leads the pack as an early indicator in volatility it underperforms relative to August through February. June is definitely the retail speculators’ darling but dealers have no problem selling it when they have order flow to lay off against it. The same can not be said for August through February. Order flow is big from the dealing banks when it comes in, but it is not consistent. Options market makers mark up December options way more than somebody would expect given a specific move in June vol; and they do it without a single order coming in to justify it. There still is a lot of anxiety from the December 2000 C shorts. The correlation of gamma between the front-month and back months is very steep. While we we would like to tell speculators to sell the back month and buy the front month because of the $6 break-even contango but we will refrain without knowing their stomach for margin calls.
The CME raised exchange fees on Clearport on all Clearport trades recently, more than doubling the rate for some of the products. This could spell trouble for OTC brokers seeking to grow their business. We’ll be doing a full report on this next week. Stay tuned for further updates.
ATM Volatility Curve:
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| J11 | 1430 | 39 | 43 |
| K11 | 1430 | 65 | 69 |
| M11 | 1430 | 86 | 90 |
| Q11 | 1430 | 125 | 129 |
| V11 | 1435 | 160 | 164 |
| Z11 | 1435 | 189 | 193 |
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