FMX | Connect (Reported 6/07/2011)
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 $1544.20 per troy ounce, a loss of $3.20 for the day. Volatility softened in sympathy with futures being sold.
Options Commentary:
In the futures market, the first hour or so of today’s activity was marked by range-bound trading and what seemed like a battle between dealers and speculators. The market gyrated between 1543 and 1547 early on and during that time, options volatility was offered. Large volume orders sold put spreads in December, straddles across the board, and calls in the 1600-1700 area. However, a retail recommendation created consistent small volume buying in the same strikes. Come mid-morning the market broke below 1544 and traded aggressively down to 1537. During this time volatility stabilized and puts went bid. Undeterred, retail continued to buy December 1700 and 1800 Calls.
To put this in context, the day started with momentum funds adding to positions and determined bullion dealers hitting their bids. The day finished with the market creeping all the way back up to within a dollar of unchanged. Options volatility remained soft but the retail is coming back consistently. We mention all this because the last time we saw a significant retail recommendation it was in the June 1425/1475 call spread, which expired in the money for $50. Our point is that retail seems to be right about this market over 3-month periods. Other than volatility selling today’s activity was centered on liquidity providers purchasing small delta puts with a focus on the August 1250 Put, which traded at .60 in volume.
Directional Analysis:
There is not much to add from an options perspective but the bifurcated market theory is more true now than ever before. As GLD players sell July and August calls and buy puts, retail speculators are buying December calls and selling December puts. So if we rally expect 90-day and shorter tenure options to underperform. If the market sells off expect them to overperform.
Today’s activity confirmed yesterday’s shooting star. However, today’s rally towards the close preventing an evening star from forming, which would have been more threatening to the bulls. Technical traders probably want to be short this market below the congestion in the 1550 area. If the next couple of days carry us sideways to lower expect the 1520 area to be retested. A settlement at 1555 or above would rekindle a bull run.
Active Options
Q 1250 P
Z 1300/1400 P. spread
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 | 1545 | 38 | 42 |
| Q11 | 1545 | 66 | 70 |
| V11 | 1545 | 110 | 114 |
| Z11 | 1545 | 145 | 149 |
| G12 | 15450 | 184 | 188 |
| J12 | 15450 | 215 | 219 |
| M12 | 1550 | 241 | 245 |
As of 4:00 P.M.
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