FMX | Connect (Reported 6/10/2011)
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 $1529.20 per troy ounce, a loss of $13.50 for the day. Options went bid for the put in the wake of a major washout.
Market Recap:
There was a triple play against gold going higher today: the dollar was firmer, there were worries about the impending end of QE2 and no bad news coming out of Greece. All sent gold lower. The pattern we’ve seen has been that absent sovereign crisis news (Portugal, Greece, etc..) gold acts like a commodity and moves in sympathy with other commodities. When those other commodities are worried about the end of QE2 gold worries about the end of QE2. When markets worry about sovereign default gold behaves like a currency. Today the dollar rallied against the euro, implying that Europe will monetize its issues and gold chose to ignore that inflationary news, instead focusing on its dollar-denomination qualities.
As for options, today was classic GLD-influenced activity. The market opened lower, calls were slammed, puts were bid and straddles were unchanged. As the market continued lower straddles were bid, puts started to pop some more and calls started to attract some interest. For the first time in a while we saw call skew go negative in the front month options during the selloff. Simultaneously, 50 delta risk reversals in December traded a vol over for the call. On one hand, you have to be nuts to be buying calls in October and December with calls trading so cheaply in the front months. On the other hand, if you are short those October and December Calls, July will not help and neither will August. One final note: we continue to see straddle offers in deferred months. We aren’t sure but think this might be symptomatic of producer related hedging.
Directional Commentary:
Options: Option activity reflected longs being very nervous about their positions. There was no activity on the buy side in October or December calls. There was plenty of activity on the put side in July and Augusts. $10 makes a big difference in this market, and can be enough to shift sentiment from greed to fear overnight. We’re calling options activity today bearish because put options did not come in at the end of the day like they usually do. As we write, puts remain bid even though the market has rallied $4 post-comex closed. Options Conclusion: Bearish
Technicals: The brick of selling at 1550, aka the immovable object, has proven itself correct for now. There was continuous buying all the way down to the trend line we mentioned yesterday but we pierced the trend line. While that itself portends for a bounce we think bears are going to have their day in a big way soon. Below 1530 we are watching 1520, the bottom of our trading range and then 1504.2, the TRP.
Active Options
N 1500 P
N 1550 C
V 1470 P G 1550 C 1x2 Fence
ATM Volatility Curve:
As of 4:00 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| N11 | 1530 | 34 | 38 |
| Q11 | 1530 | 61 | 65 |
| V11 | 15430 | 105 | 109 |
| Z11 | 1530 | 140 | 144 |
| G12 | 1535 | 179 | 183 |
| J12 | 1535 | 208 | 212 |
| M12 | 1535 | 236 | 240 |
As of 4:00 P.M.
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