FMX | Connect (Reported 6/02/2011)
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
August Gold settled at $1532.70 per troy ounce, a loss of $10.50 for the day. Options went bid for the put after a mid-morning washout.
Options Commentary:
The market opened $3-5 lower. Short-dated volatility, specifically July, was bid on the back of yesterday’s post-close activity. Simultaneously, the October 1550 straddle was offered in volume by dealers (it traded between 118-119). At 9:30 GLD opened and the October straddles began to trade on the back of ETF arbitrage. Meanwhile, the futures seemed to pick a direction higher and the market rallied to unchanged. However, that did not last long. The technical indicators that we’ve discussed before seemed to assert themselves very strongly at this point and gold began to rotate lower in an orderly fashion.
Stops were hit in the 1530 area and the market quickly traded down to 1520.40. Options liquidity providers scrambled for puts. Demand came from two sources: one, GLD market makers seeking to arbitrage their sales on the ETF and two, traditional market makers who needed the bullets. As we’ve said before, skew is often more volatile than volatility these days. Volatility caught a bid on the lows and remained firm even though the market bounced all the way up to 1535, where it rested soon after the close. Our guess is barring a $10 lower call tomorrow volatility should be softer. Of note, risk reversals did begin to trade for the put and went unfilled. The call party may be over.
Directional Analysis:
Directionally, options flipped violently from bullish to bearish. Nonetheless, its important to note that options have been reacting to moves, not predicting moves lately.
The market could not make significant headway at the congestion area from 1540 to 1550. Gold could not settle over 1550 and once it broke below 1540 it was technically poised to roll over, and it did. The rally seems exhausted for the moment and we expect the market to begin probing for lower levels of support. August futures bounced off the 1520 level hard today and could break down if it is breached.
Active Options
N 1540 C
Q 1250 P
V 1550 Straddle
Z 1600/1700 C. spread
ATM Volatility Curve:
As of 4:00 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| N11 | 1535 | 44 | 48 |
| Q11 | 1535 | 71 | 75 |
| V11 | 1535 | 116 | 120 |
| Z11 | 1535 | 151 | 155 |
| G12 | 1535 | 188 | 192 |
| J12 | 1540 | 218 | 222 |
| M12 | 1540 | 244 | 248 |
As of 4:00 P.M.
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