FMX | Connect (Reported 4/19/2011)
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 $1495.10 per troy ounce, a gain of $2.20 for the day. Option trading was sparse and futures failed to make significant headway.
Commentary & Analysis:
Volatility was softer across the board today, including May. This was despite the consistent buying of May 1520 calls. We believe the open interest will show that fresh money is speculating on these options. They seem to be more aggressively bought on dips than in rallies, suggesting someone may be accumulating for a possible play come expiration. Here’s how we think it could play out:
First, there is large open interest at the 1500 strike. If the shorts were made to hedge their negative gamma on a push through the strike a quick large move higher could ensue. Many technical analysts have opined that a settlement over 1500 should carry futures to 1520 or higher. We think that the buyer is looking for some event like that to happen. Bear in mind that gold and silver options expiration this month will be on a very thinly traded futures market (see below).
April 21st, Holy Thursday: day before a holiday
April 22nd: Good Friday: CME Closed
April 23rd,Easter Saturday: Markets Closed
April 24th,Easter Sunday: Markets Closed
April 25th, Easter Monday: LME Closed (Largest Physical Bullion Exchange Worldwide)
April 26th, Tuesday: May Options Expiration CME
So that’s the theory, here is today’s reality. The market did push up to 1500 and broke it by half a dollar. If buyers were probing for stops they found nothing but selling, at least this time. We think there will be more tests to come over the next week. Other than May activity there was very little to talk about today. Options were offered everywhere, most heavily in the backs but call skew remains curiously firm. If yesterday’s options activity was an aberration and not a sea change then the call skew is overvalued but as of now we won’t fight the market.
Don’t miss our special Silver options expiration series all this week STARTING HERE, with a special focus on the much-discussed May 40 call.
Active Options
K 1500 C
K 1520 C
ATM Volatility Curve:
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| K11 | 1495 | 19 | 23 |
| M11 | 1495 | 49 | 53 |
| Q11 | 1495 | 94 | 98 |
| V11 | 1495 | 132 | 136 |
| Z11 | 1500 | 163 | 167 |
| G12 | 1500 | 195 | 199 |
| J12 | 1500 | 216 | 220 |
| M12 | 1505 | 250 | 254 |
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