Afternoon Gold Fix – March 8, 2011
FMX | Connect (Reported 3/08/2011)
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 $1425.50 per troy ounce, a loss of $7.30 for the day. Volatility faded as futures traded lower and skew shifted toward the puts.
Active Options
Gold
J 1400P /1465 C risk reversal trds .80 for the put
J 1350/1400 P. sprd trds 5
M 1550/1700 1 x 3 C. sprd trds 3.2
Silver
K 32.5 P / 40 C fence trds 6
U 30 P trds 1.2
U 28 P/42 C fence
Analysis:
The market came in slightly higher this morning and volatility was unchanged with little trading. As futures began to rotate lower there was activity in April. Put buyers arrived in fence, put spread and outright form. Close to the lows of the day, a dealer quoted and traded the June 1550/1700 1 x 3 C. sprd. Puts were marked higher in the down move but there was no significant activity to confirm their levels. Calls were not marked lower but we suspect they would have been if anybody cared.
Commentary:
It was a disappointing day overall with the market attracting neither buying or selling on the highs this morning. Bearish dealers positioned themselves as the market came off but then the market failed to follow through on the downside. We might be flagging for the next few day but as to whether it’s a bull or bear flag, we aren’t sure. It’s worth noting that 1x3 call spreads like the one we we saw today in June have traded in several months over the past few weeks. One can only assume this is a flight to quality from a bullion dealer, probably seeking to roll his wing calls to a level where they can do some good. Perhaps he is short at-the money’s against it.
Dealers came in buying puts and selling calls in May silver. We think this is more of a premium trade than a bearish trade. Skew is very steep in silver and the individuals using Black-Scholes-type models may find it very tempting to lean into it at these levels.
ATM Volatility Curve:
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| J11 | 1425 | 34 | 38 |
| K11 | 1430 | 59 | 63 |
| M11 | 1430 | 80 | 84 |
| Q11 | 1430 | 119 | 123 |
| V11 | 1430 | 154 | 158 |
| Z11 | 1435 | 182 | 186 |
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