FMX | Connect (Reported 6/03/2011)
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 $1542.20 per troy ounce, a gain of $9.70 for the day. Gold rallied after weaker-than-expected nonfarm payrolls, and options remained firm.
Options Commentary:
Yesterday’s selloff in gold seemed to have been on the back of a temporary resolution to the Greece crisis. That trend seemed to continue throughout the evening and into the morning before the Comex open, as gold traded $2-7 lower overnight. At 8:30 ET nonfarm payrolls came out at 54,000, well below the consensus expectation of 165,000 and gold immediately began to rise. Volatility was offered as the market broke above unchanged and remained offered until August traded above 1535, at which point large July put buying began to come in (focused on the 1500-1460 area). At the same time, a momentum fund came in and purchased the October 1600/1690 1x2 Call spread. The activity was a little confusing from a directional perspective but could easily be explained from a bullish or bearish perspective.
Bullish: The put buyer(s) showed his hand in volume and price and waited for the market to come to him. He left his bids resting during the rally and waited until he was filled. These very well could have been futures bulls that were hedging their positions. The October 1x2 Call spread was simply that, a bullish purchase.
Bearish: The puts were bought by bears who thought we were near the top of the trading range and thought it was a good spot to get short. The 1x2 purchases is a momentum fund and seems to have a track record of buying near the top of a range.
Your guess is as good as ours for what today’s activity means directionally. From a volatility perspective, by the end of the day volatility was unchanged. It may have been weaker had their not been a buyer of the October 1470 put, propping the board up. Call skew underperformed a little. Put bids came in through the whole rally across the board.
Directional Analysis:
Directionally, options are saying to fade the rally. This is consistent with our technical analysis, which before we get into more detail, simply states that below 1550 we are not bullish.
The market is pushing up against the upper end of a trading range with 1552 as the previous breakdown level. A close over 1552 is needed for the market to push towards the previous high of 1577.70. Bulls may want to buy dips with stop-losses placed near yesterday’s low of 1520. Beneath that we should reach for the 50-day moving average (1492.50).
Active Options
N 1480 P
V 1470 P
Z 1800/2000 C. spread vs. 1200 P. 3-way
ATM Volatility Curve:
As of 4:00 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| N11 | 1540 | 43 | 47 |
| Q11 | 1540 | 71 | 75 |
| V11 | 1545 | 116 | 120 |
| Z11 | 1545 | 151 | 155 |
| G12 | 1545 | 189 | 193 |
| J12 | 1545 | 219 | 223 |
| M12 | 1550 | 246 | 250 |
As of 4:00 P.M.
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