FMX | Connect (Reported 5/02/2011)
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 $1557.10 per troy ounce, a gain of $.70 for the day. Gold options remained firm in the face of heavy overnight selling.
Commentary & Analysis:
Best to start today’s commentary with a recap of Friday’s post-Comex close activity. On Friday, the market ran up from its close in the 1556 area to approximately 1565. Volatility and skew reacted very well to that move. The settlements that you saw on Friday did not reflect where the market went out for the weekend. This is important because despite today’s market’s close, which settled less than a dollar higher than Friday, the volatility and skew changes from Friday afternoon held.
On to today’s action. Last night futures sold off to $1440.50/ounce on the back of heavy silver selling and dollar strength. Several rumors circulated the market about silver. One was that the increase in margins by FCMs to a multiple of the CME’s own requirements caused the sell-off. Another involved dollar strength and Chinese growth slowing. Our favorite was that George Soros was dumping all his precious metals. It’s our favorite because its exactly what we would say if we were George Soros and wanted to buy more. One thing is important to note. The origin of the selling last night happened in New Zealand hours and came out of the physical market, NOT the futures market. This was not, in our opinion, margin related at all. We think this was someone who wanted or needed to get out. It may have been related to Columbia announcing it would not nationalize its mining industry, but this should have been baked into the market all ready.
Back to gold. Gold’s weakness was on the back of silver, but it held up very nicely. When the Comex opened, volatility was unchanged from the Friday post-Comex increase. As the market reversed and rallied volatility exploded, with the June at-the-money straddle going to $63 at one point. The August at-the-money straddle went as high as $118 and for December, up to $194. The futures market reached Sunday night’s highs of 1577 and broke them by 40 cents. It lingered between 1570 and 1575 long enough for June and August calls to catch yet another bid, but then the market sold off. Amazingly, options were not sold in the down move. We think this is because of simple exhaustion. Many market makers were hands-off and when called upon for liquidity all that could be heard from many was the chirping of crickets.
Near the highs a fund bought one to two thousand December 1400 puts at 29.5 with futures. One can only think this was a bullish play. When the market approached unchanged, volatility backed off to Friday’s post-Comex levels. As of this writing, we are trading 1545 and volatility has softened across the board but once again, June has caught a bid. It would seem downside fears are growing. On a final note, the post-close futures sell-off came on the heels of Tim Geithner’s statement that the Treasury would cease issuing certain securities until the debt celing was raised. We view this as staged bad-cop statement so President Obama can raise the ceiling with little worry. Why this is bearish for gold, we have no idea. The president’s recent success killing OBL should give him all the political capital he needs. We remain buyers of dips but now we are selling rallies, whereas before we were not.
Active Options
M 1600 C, M 1550 P
Z 1400 P
Z 2500 C
ATM Volatility Curve:
As of 4:00 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| M11 | 1555 | 54 | 58 |
| N11 | 1560 | 87 | 91 |
| Q11 | 1560 | 109 | 113 |
| V11 | 1560 | 153 | 157 |
| Z11 | 1560 | 186 | 190 |
| G12 | 1560 | 224 | 228 |
| J12 | 1565 | 257 | 261 |
| M12 | 1565 | 286 | 290 |
As of 4:00 P.M.
Premium Subscribers
(click here to register): Volumes & Open Interest
End Of Day Straddles
Trade Blotter
Settlements
-----
About FMX: FMX Connect is an information, data, and analytics portal for Commodities. The portal provides an all-in-one package including essential market data, independent third party research, industry news, and commodity trading tools. FMX Connect provides efficient, effective, and thorough data that bridges all aspects of commodities onto one screen. The Result; A user friendly application for hedge fund traders, OTC brokers, individual investors, and industry participants
-----
Note: The information presented, while from sources generally believed to be reliable, is not guaranteed and may not be complete. FMX | Connect makes no representations or warranties regarding the correctness of any opinions or information. Past results are not necessarily indicative of future results. Nothing in this report should be construed as a representation to buy or sell shares, futures or options, which contain considerable risks. For internal client distribution only. Any reproduction, re-transmission, or distribution of this report without permission is prohibited. Media correspondents or reporters may not quote any one page or section in its entirety and must attribute all quotes, ideas or concepts herein. Copyright FMX | Connect, ©2009-2010. All rights reserved.