FMX | Connect (Reported 6/13/2011)
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 $1515.60 per troy ounce, a loss of $13.60 for the day. Futures washed out, puts were bid and calls collapsed.
Market Recap:
After trading lower overnight, most likely the result of tighter Chinese monetary policy, gold briefly ventured back to unchanged before selling off later in the morning. The market made feeble attempts to move higher but options activity would have none of it. The day started with straddles offered, specifically the December 1530 Straddle. Speculators also sold, unwinding call spreads and calls on Globex and the floor. Dealers priced risk reversals, seemingly to buy put, but did not get the levels they wanted. As the day wore on the market drifted lower, gaining some momentum. For the first leg down July options were offered. There was no “GLD phenomena” of put bids. Then at about 1:00 the market sold off violently. Volume exploded and futures snowballed from 1524 to as low as 1512 during that 15 minute period. Shortly thereafter the market recovered and traded up to 1522 before settling into a groove in the 1517 area. Nonetheless, the damage had been done. Calls were smothered, puts were bid (especially July) and straddles stood on the verge of being bid again.
The more significant trades of the day involved resting call bids such as December 2012 2000 Call which traded 48 during the big market sell off. Another structure that garnered a lot of attention was the purchase of the July 1525/1550 Strangle vs. a sale of 1 August 1650 Call, 1 October 1650 Call and 2 August 1450 Puts. This structure traded 9.80 about 500 times and was attractive to market makers as a means to get short.
Directional Commentary:
Options: Its notable that there was a lack of bids for calls on the way down. It seems as if the retail has lost interest in buying. Meanwhile, the GLD-based put buying has stepped up aggressively. Options Conclusion: Bearish
Technicals: Support was broken at several important level today, including several long-term trend lines and the 20-day moving average. Futures broke out of the narrow trading range but have a ways to go before reaching another. We reiterate 1504 as our TRP level but before getting there keep your eyes on the 50 day Moving Average (1505.40), which has been the touchstone for the last 2 years in this market. Technical Conclusion: Bearish
Silver Commentary: Gold may look bad but silver looks worse, and was actually the subject of one our Bollinger Band Indicator this morning. Silver is trading below the 20,50 and 100 day Moving Averages. Our Bollinger Band volatility system implies it is poised for a bigger breakdown should the market break 33.56. If the market breached 33.56 we believe the selloff will accelerate. Only a settlement above the the 20-day moving average of 36.2 will give this market a respite.
Active Options
N 1525/1550 Strangle vs. Q 1650 C, V 1650 C, 2 Q 1450 P
Q 1500 P
ATM Volatility Curve:
As of 4:00 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| N11 | 1515 | 32 | 36 |
| Q11 | 1515 | 58 | 62 |
| V11 | 1515 | 103 | 107 |
| Z11 | 1520 | 136 | 140 |
| G12 | 1520 | 175 | 179 |
| J12 | 1520 | 204 | 208 |
| M12 | 1520 | 231 | 235 |
As of 4:00 P.M.
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